Years ended December 31, 2017 and 2016 with Report of Independent Auditors

Audited Financial Statements Years ended December 31, 2017 and 2016 with Report of Independent Auditors

Audited Financial Statements Years ended December 31, 2017 and 2016 Contents Report of Independent Auditors...1-2 Audited Financial Statements Balance Sheets...3 Statements of Comprehensive Income...4 Statements of Changes in Total Equity...5 Statements of Cash Flows...6 Notes to Financial Statements...7-20 Required Supplementary Information (Unaudited) Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance...22-27 Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance...28

Report of Independent Auditors Audit Committee of the Board of Directors Alliance of Nonprofits for Insurance, Risk Retention Group, Inc. We have audited the accompanying financial statements of Alliance of Nonprofits for Insurance, Risk Retention Group, Inc. ("the Company") which comprise the balance sheets as of December 31, 2017 and 2016 and the related statements of comprehensive income, changes in total equity, and cash flows for the years 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 ("GAAP"), modified for certain exceptions to GAAP which are prescribed or permitted by the Vermont Department of Financial Regulation ("the Department"). 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 fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. 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. Report on Required Supplemental Information Accounting principles generally accepted in the United States of America require that the disclosures about short-duration insurance contracts on pages 22-28 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Financial Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial 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 inquires of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquires, 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.

Basis for Qualified Opinion As described more fully in Note 2, the Company prepared these financial statements in accordance with GAAP, modified for certain exceptions to GAAP which are prescribed or permitted by the Department. The Department requires the Company to account for the $2 million surplus note as described in Note 7 as equity and not as a liability, as would be required by GAAP. Qualified Opinion In our opinion, except for the effects of the matter discussed in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Alliance of Nonprofits for Insurance, Risk Retention Group, Inc. as of December 31, 2017 and 2016 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Raleigh, North Carolina March 6, 2018

Balance Sheets December 31, 2017 and 2016 2017 2016 Assets Cash and cash equivalents $ 10,445,493 $ 11,450,235 Investments in debt securities 79,572,432 70,120,077 Premium receivable 10,045,119 8,501,134 Agents balances 2,737,648 5,523,512 Interest receivable 437,614 362,053 Reinsurance recoverable 34,094,040 24,739,340 Prepaid reinsurance premium 5,706,182 5,011,235 Deferred acquisition costs 3,595,016 3,235,795 Prepaid expenses and other assets - 5,711 Total assets $ 146,633,544 $ 128,949,092 Liabilities and Total Equity Liabilities Loss and loss adjustment expense reserves $ 84,328,969 $ 70,469,440 Unearned premium 21,675,460 19,668,140 Reinsurance payable 1,411,503 1,122,463 Payable to affiliates 191,547 489,650 Accounts payable and other accrued liabilities 853,087 2,035,186 Total liabilities 108,460,566 93,784,879 Total Equity Capital contributions 10,000,000 10,000,000 Surplus note 2,000,000 2,000,000 Accumulated earnings 25,996,142 23,246,777 Accumulated other comprehensive income 176,836 (82,564) Total equity 38,172,978 35,164,213 Total liabilities and equity $ 146,633,544 $ 128,949,092 The accompanying notes are an integral part of these financial statements 3

Statements of Comprehensive Income Years Ended December 31, 2017 and 2016 2017 2016 Revenues Gross written premium $ 43,680,183 $ 40,588,963 Ceded premium (11,636,519) (10,624,319) Net written premium 32,043,664 29,964,644 Change in unearned premium, net (1,312,373) (394,353) Net earned premium 30,731,291 29,570,291 Net investment income 1,831,830 1,413,331 Net realized (losses) gains on investments (8,534) 130,404 Other income 296,803 238,236 Total revenues 32,851,390 31,352,262 Expenses Losses and loss adjustment expenses, net 20,126,718 20,149,876 Commission expense, net 4,770,334 4,421,998 Management fee 3,206,136 2,880,889 Other expenses 1,998,837 2,035,571 Total expenses 30,102,025 29,488,334 Net income 2,749,365 1,863,928 Other comprehensive income: Net unrealized holding gain (loss) arising during year 250,866 (226,320) Reclassification adjustment for net realized losses (gains) included in net income 8,534 (130,404) Other comprehensive income (loss) 259,400 (356,724) Comprehensive income $ 3,008,765 $ 1,507,204 The accompanying notes are an integral part of these financial statements 4

Statements of Changes in Total Equity Years Ended December 31, 2017 and 2016 Capital Contributions Surplus Note Accumulated Earnings Accumulated Other Comprehensive Income Total Balances, January 1, 2016 $ 10,000,000 $ 2,000,000 $ 21,382,849 $ 274,160 $ 33,657,009 Net income 1,863,928 1,863,928 Other comprehensive loss (356,724) (356,724) Balances, December 31, 2016 10,000,000 2,000,000 23,246,777 (82,564) 35,164,213 Net income 2,749,365 2,749,365 Other comprehensive income 259,400 259,400 Balances, December 31, 2017 $ 10,000,000 $ 2,000,000 $ 25,996,142 $ 176,836 $ 38,172,978 The accompanying notes are an integral part of these financial statements 5

Statements of Cash Flows Years Ended December 31, 2017 and 2016 2017 2016 Cash flows from operating activities Net income $ 2,749,365 $ 1,863,928 Adjustments to reconcile net income to net cash from operating activities Net realized loss (gain) on investments 8,534 (130,404) Amortization of premium of debt securities 256,550 326,260 Changes in operating assets and liabilities Premium receivable (1,543,985) 177,094 Agents balances 2,785,864 633,269 Interest receivable (75,561) (52,670) Receivable from affiliates - 458,940 Reinsurance recoverable (9,354,700) (1,154,944) Prepaid reinsurance premium (694,947) (120,491) Deferred acquisition costs (359,221) (164,678) Prepaid expenses and other assets 5,711 (4,019) Loss and loss adjustment expense reserves 13,859,529 8,853,374 Unearned premium 2,007,320 514,844 Reinsurance payable 289,040 (7,756) Payable to affiliates (298,103) 489,650 Accounts payable and other accrued liabilities (1,182,099) 1,467,036 Net cash from operating activities 8,453,297 13,149,433 Cash flows from investing activities Purchase of investments (37,523,821) (45,625,982) Proceeds from sales and maturities of investments 28,065,782 32,178,249 Net cash used in investing activities (9,458,039) (13,447,733) Net change in cash and cash equivalents (1,004,742) (298,300) Cash and cash equivalents, beginning of year 11,450,235 11,748,535 Cash and cash equivalents, end of year $ 10,445,493 $ 11,450,235 Supplemental disclosure of cash flow information Interest paid $ 40,000 $ 40,000 The accompanying notes are an integral part of these financial statements 6

Notes to Financial Statements Years ended December 31, 2017 and 2016 1. Organization Alliance of Nonprofits for Insurance, Risk Retention Group, Inc. ("the Company ) is a nonprofit organization incorporated in the State of Vermont. The Company operates as a captive insurance company pursuant to authorization under Section 6002, Vermont Statutes Annotated. The Company is subject to the rules, regulation and supervision of the Vermont Department of Financial Regulation ("the Department"). The Bill & Melinda Gates Foundation and the David and Lucile Packard Foundation provided initial capital contributions of $10 million to the Company and its affiliates, of which $2 million initially was allocated to the Company. The Company commenced its operations on January 1, 2001. In 2003, 2005 and 2015, contributed capital was increased to $4 million, $6 million and $10 million, respectively, after receiving approval from the Department to transfer $2 million, $2 million and $4 million, respectively, of capital in each of those years from, National Alliance of Nonprofits for Insurance, Inc. ( NANI ), to the Company. The Company is a member of the Nonprofits Insurance Alliance Group ( NIA Group ), which consists of nonprofit companies whose primary activities serve 501(c)(3) tax-exempt nonprofit organizations by providing a source of liability insurance coverage tailored to the specialized needs of the nonprofit sector, and assisting these organizations to develop and implement successful loss control and risk management programs. The NIA Group includes the Company, Nonprofits Insurance Alliance of California, Inc. ( NIAC ), NANI, Alliance Member Services, Inc. ( AMS ) and AMS Insurance Services, Inc. ( AMSIS ). Organizations which meet all of the following requirements may become members of the Company: (1) they are nonprofit organizations that have received and maintain current and unrevoked determinations of tax-exempt status under Section 501(c)(3) of the Internal Revenue Code; (2) they have requested a policy through the Company; their applications for such policies have been accepted by the Company; and they have paid the premium due for such policies; and (3) they have paid any required surplus contribution to the Company. Because the Company is nonassessable, the member insureds of the Company are not liable for the Company s liabilities should they exceed the Company s assets. The Company provides commercial general liability, social service professional liability, business auto liability, employer's non owned and hired automobile liability, improper sexual conduct liability, directors and officers' ("D&O") liability, and umbrella liability coverage to its members. Coverage is provided on an occurrence basis for all except improper sexual conduct liability and D&O liability. Typical limits are $1 million per occurrence and an annual aggregate of $3 million is available. D&O liability and improper sexual conduct liability are provided on an event trigger coverage form with typical limits available up to $1 million. Defense is included in the limits of the improper sexual conduct coverage. Employee benefits liability is provided on a claims-made form. Employment practices liability is available on the D&O liability coverage form. The Company also offers umbrella coverage for general liability, D&O and improper sexual conduct policies up to $10 million. The Company reinsures part of the coverages as described in Note 5. 7

Notes to Financial Statements (Continued) 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with practices prescribed or permitted by the Captive Insurance Division of the Department. Such accounting practices are equivalent to accounting principles generally accepted in the United States of America ( GAAP ). However, the Department requires the Company to account for the surplus note as described in Note 7 as equity and not as a liability, as would be required by GAAP. Financial Statement Estimates The preparation of financial statements in conformity with GAAP 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 materially from those estimates. Investments Investments in debt securities are classified as available-for-sale and are reported at fair value, with unrealized gains and losses excluded from net income and reported as a separate component of other comprehensive income. Estimated fair values of debt securities are generally based on average bid prices, or the average bid prices of similar issues with the same life and expected yields. Realized investment gains and losses are recognized based upon the specific identification of investments sold. An investment is considered impaired when the fair value of the investment is less than its cost or amortized cost. When an investment is impaired, the Company must make a determination as to whether the impairment is other-than-temporary. Factors considered in identifying other-than-temporary impairment include: (1) for debt securities, whether the Company intends to sell the investment or whether it is more likely than not that the Company will be required to sell the security prior to an anticipated recovery in value; (2) the likelihood of the recoverability of principal and interest for debt securities (i.e., whether there is a credit loss); (3) the length of time and extent to which the fair value has been less than amortized cost; and (4) the financial condition, near-term and long-term prospects for the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices. Any such write downs are reported as realized losses on investments. Cash and Cash Equivalents Cash and cash equivalents include cash on deposit and money market mutual funds, and any securities with original maturities within three months of the acquisition date. The Company maintains certain cash and cash equivalent balances that exceed Federal Deposit Insurance Company insurance thresholds, which management does not consider to be a significant risk. 8

Notes to Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) Premium Receivable and Agents Balances The Company includes in premium receivable the unpaid balance of premiums due from policyholders that are payable in full on the effective date of the insurance policy or in installments under the Company s installment payment plan, including any related finance charges. AMS collects premium on behalf of the Company and remits it to the Company. Agents balances include premiums collected by AMS on behalf of the Company and not yet remitted. Management continually monitors its receivables for collectability, and any accounts deemed uncollectable are written off in the period the determination is made. During 2017 and 2016, the Company wrote off $7,000 and $9,000 of premiums receivable, respectively. As of December 31, 2017 and 2016, the Company recorded an allowance for uncollectable amounts of $9,410 and $12,698, respectively. Reinsurance Reinsurance recoverable (including amounts related to claims incurred but not reported) and prepaid reinsurance premiums are reported as assets. Reinsurance recoverable on unpaid losses and loss adjustment expenses is estimated in a manner consistent with the gross liabilities relating to the underlying insured contracts, as discussed below. Management continually monitors its reinsurance balances for collectability, including a review of reinsurer creditworthiness, and any accounts deemed uncollectable are written off in the period the determination is made. No allowance for uncollectable amounts was recorded as of December 31, 2017 and 2016. Reinsurance payable represents ceded premium unpaid. Ceding commissions are recorded based on ceded written premium, and are deferred and recognized over the policy term, as discussed in the following paragraph. Ceding commissions are reported as an offset to commission expense. Deferred Acquisition Costs Policy acquisition costs are deferred and amortized over the period of premium recognition. Deferred acquisition costs include commissions (net of ceding commissions), premium taxes and departmental cost associated with successful policy issuance. Amortization of acquisition costs was $6,850,245 and $6,459,288 for 2017 and 2016, respectively. Anticipated investment income is not considered in determining if a premium deficiency exists. No premium deficiency reserve has been recorded as of December 31, 2017 or 2016. Liability for Losses and Loss Adjustment Expenses ("LAE") The liability for losses and LAE consists of estimated costs of each unpaid claim reported prior to the close of the accounting period, as well as those incurred but not yet reported. Management believes that the reserves for losses and LAE at December 31, 2017 and 2016 are appropriately established in the aggregate and are adequate to cover the ultimate cost of reported and unreported claims attaching by that date, based upon an actuarial analysis prepared by a consulting actuary. The establishment of appropriate reserves is an inherently uncertain process. Such reserves are necessarily based on estimates and the ultimate net cost may vary from such estimates. These estimates are regularly reviewed and updated using the most current information available. Any resulting adjustments, which may be material, are reflected in current operations. Revenue Recognition Premiums are recognized as earned on a pro rata basis over the terms of the policies, usually twelve months. Unearned premium reserves are established to cover the unexpired portion of premium written. 9

Notes to Financial Statements (Continued) 2. Summary of Significant Accounting Policies (Continued) Income Taxes The Company is tax-exempt for federal tax purposes under Section 501(c)(3) of the Internal Revenue Code. With the exception of premium taxes, the Company is not subject to any state taxes. During the years ended December 31, 2017 and 2016, the Company did not have any income subject to taxation as unrelated business income. Management concluded that the Company has properly maintained its exempt status and that no uncertain tax positions exist as of December 31, 2017. Subsequent Events The Company evaluated subsequent events through March 6, 2018, the date on which these financial statements were available to be issued, and considered any relevant matters in the preparation of the financial statements and note disclosures. 3. Investments Investments, carried in the accompanying balance sheets at estimated fair value, consist of the following as of December 31: 2017 Cost or Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value U.S. government and agency obligations $ 6,989,708 $ 174 $ 83,781 $ 6,906,101 Municipal obligations 5,919,912 21,800 43,196 5,898,516 Corporate obligations 34,359,507 352,796 137,454 34,574,849 Residential mortgage-backed securities 22,702,121 234,382 145,288 22,791,215 Commercial mortgage-backed securities 869,163 9 7,094 862,078 Automobile asset-backed securities 8,555,185 6,857 22,369 8,539,673 Total investments $ 79,395,596 $ 616,018 $ 439,182 $ 79,572,432 2016 Cost or Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value U.S. government and agency obligations $ 7,205,878 $ 683 $ 102,451 $ 7,104,110 Municipal obligations 5,190,111 34,810 31,608 5,193,313 Corporate obligations 28,991,835 273,611 293,646 28,971,800 Residential mortgage-backed securities 22,218,047 250,717 226,671 22,242,093 Commercial mortgage-backed securities 2,141,893 17,833 10,753 2,148,973 Automobile asset-backed securities 4,454,878 15,413 10,503 4,459,788 Total investments $ 70,202,642 $ 593,067 $ 675,632 $ 70,120,077 10

Notes to Financial Statements (Continued) 3. Investments (Continued) The amortized cost and estimated fair value of investments in debt securities at December 31, 2017, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or repayment penalties. Cost or Amortized Cost Estimated Fair Value Due in 1 year or less $ 2,861,065 $ 2,872,217 Due after 1 year through 5 years 23,816,396 23,811,032 Due after 5 years through 10 years 20,427,690 20,532,396 Due after 10 years 163,976 163,821 Residential mortgage-backed securities 22,702,121 22,791,215 Commercial mortgage-backed securities 869,163 862,078 Automobile asset-backed securities 8,555,185 8,539,673 $ 79,395,596 $ 79,572,432 Gross realized gains and losses on sales of debt securities were $120,620 and $129,154 in 2017, respectively, and $359,044 and $228,640 in 2016, respectively. Residential mortgage-backed securities consist of issues of the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae). At December 31, 2017 and 2016, unrealized losses on debt securities were as follows: Less Than 12 Months 12 Months or Greater Total 2017 Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value U.S. government and agency obligations $ 43,906 $ 4,704,423 $ 39,874 $ 1,600,383 $ 83,781 $ 6,304,806 Municipal obligations 13,088 1,907,001 30,108 1,553,995 43,196 3,460,996 Corporate obligations 32,243 4,273,261 105,211 7,025,084 137,454 11,298,345 Residential mortgagebacked securities 20,564 15,261,228 124,725 6,615,497 145,288 21,876,725 Commercial mortgagebacked securities 1,064 285,905 6,030 561,822 7,094 847,727 Automobile assetbacked securities 15,619 5,189,136 6,750 1,409,385 22,369 6,598,521 $ 126,484 $ 31,620,954 $ 312,698 $ 18,766,166 $ 439,182 $ 50,387,120 11

Notes to Financial Statements (Continued) 3. Investments (Continued) Less Than 12 Months 12 Months or Greater Total 2016 Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value U.S. government and agency obligations $ 97,613 $ 4,350,024 $ 4,838 $ 1,102,641 $ 102,451 $ 5,452,665 Municipal obligations 28,666 1,448,564 2,942 392,058 31,608 1,840,622 Corporate obligations 262,114 9,675,939 31,532 3,065,863 293,646 12,741,802 Residential mortgagebacked securities 188,830 17,912,009 37,841 4,001,428 226,671 21,913,437 Commercial mortgagebacked securities 2,186 260,654 8,567 1,070,054 10,753 1,330,708 Automobile assetbacked securities 8,960 1,415,939 1,543 413,390 10,503 1,829,329 $ 588,369 $ 35,063,129 $ 87,263 $ 10,045,434 $ 675,632 $ 45,108,563 At December 31, 2017 and 2016, 174 and 162 securities, respectively, were in an unrealized loss position. The unrealized losses on the Company's investments in bonds were caused by interest rate changes during the year. Based upon management s evaluation of the impairment considerations disclosed in Note 2, the Company does not consider those investments to be other-than-temporarily impaired at December 31, 2017 and 2016. Current accounting guidance establishes a three-level hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets (Level 1), the next priority to quoted prices for identical assets in inactive markets or similar assets in active markets (Level 2) and the lowest priority to unobservable inputs (Level 3). The following table presents the Company s investment securities within the fair value hierarchy, indicating the objectivity and reliability of the inputs used to value those securities at December 31: 2017 Estimated Fair Value Level 1 Level 2 Level 3 U.S. government and agency obligations $ 6,906,101 $ 6,906,101 $ - $ - Municipal obligations 5,898,516-5,898,516 - Corporate obligations 34,574,849-34,574,849 - Residential mortgage-backed securities 22,791,215-22,791,215 - Commercial mortgage-backed securities 862,078-862,078 - Automobile asset-backed securities 8,539,673-8,539,673 - Total investments $ 79,572,432 $ 6,906,101 $ 72,666,331 $ - 12

Notes to Financial Statements (Continued) 3. Investments (Continued) 2016 Estimated Fair Value Level 1 Level 2 Level 3 U.S. government and agency obligations $ 7,104,110 $ 7,104,110 $ - $ - Municipal obligations 5,193,313-5,193,313 - Corporate obligations 28,971,800-28,971,800 - Residential mortgage-backed securities 22,242,093-22,242,093 - Commercial mortgage-backed securities 2,148,973-2,148,973 - Automobile asset-backed securities 4,459,788-4,459,788 - Total investments $ 70,120,077 $ 7,104,110 $ 63,015,967 $ - 4. Loss and Loss Adjustment Expense Reserves Activity in the loss and LAE reserves for 2017 and 2016 is summarized as follows: 2017 2016 Gross loss and LAE reserves, January 1 $ 70,469,440 $ 61,616,066 Reinsurance recoverable on unpaid loss and LAE (25,209,894) (23,448,471) Net loss and LAE reserves 45,259,546 38,167,595 Incurred related to: Current year 19,603,456 19,897,053 Prior years 523,262 252,823 Total incurred 20,126,718 20,149,876 Paid related to: Current year 2,113,099 1,986,464 Prior years 13,255,515 11,071,461 Total paid 15,368,614 13,057,925 Net loss and LAE reserves, December 31 50,017,650 45,259,546 Reinsurance recoverable on unpaid loss and LAE 34,311,319 25,209,894 Gross loss and LAE reserves, December 31 $ 84,328,969 $ 70,469,440 As a result of changes in estimates of insured events in prior years, the loss and loss adjustment expense reserves related to prior accident years increased by a net $523,262 in 2017. During 2016, the loss and loss adjustment expense reserves related to prior accident years increased by a net $252,823. In both 2017 and 2016, the reserve development is considered de minimis. 13

Notes to Financial Statements (Continued) 4. Loss and Loss Adjustment Expense Reserves (Continued) The reconciliation of the net incurred and paid losses development tables to the liability for losses and loss adjustment expenses on the balance sheet as of December 31, 2017 is as follows: Net outstanding liabilities Auto Liability $ 9,918,276 Directors & Officers 8,370,149 General Liability 10,521,613 Improper Sexual Conduct 7,956,275 Social Services Professional 10,575,939 Umbrella 886,741 Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance 48,228,993 Reinsurance recoverable Auto Liability 3,593,992 Directors & Officers 626,406 General Liability 1,404,506 Improper Sexual Conduct 6,941,372 Social Services Professional 4,286,651 Umbrella 17,458,392 Total reinsurance recoverable on unpaid losses and loss adjustment expenses 34,311,319 Unallocated loss adjustment expenses 1,788,657 Total gross liability for unpaid losses and loss adjustment expenses $ 84,328,969 14

Notes to Financial Statements (Continued) 4. Loss and Loss Adjustment Expense Reserves (Continued) The following is information about incurred and cumulative paid losses and loss adjustment expenses, net of reinsurance, and total incurred-but-not-reported (IBNR) liabilities plus expected development on reported claims, net of reinsurance and the cumulative number of reported claims as of December 31, 2017, by category: Auto Liability Total IBNR Plus Expected Development on Reported Claims Cumulative Number of Reported Claims Accident Year Incurred Cumulative Paid 2008 $ 2,374,365 $ 2,374,410 $ - 364 2009 1,805,517 1,805,497 20 392 2010 3,222,860 3,221,764 1,051 487 2011 4,927,470 4,851,543 75,927 576 2012 3,651,464 3,650,740 724 507 2013 5,125,778 4,846,434 15,972 619 2014 4,678,223 4,326,000 207,648 736 2015 5,629,747 4,085,851 529,406 863 2016 5,835,837 2,231,139 2,588,382 670 2017 5,155,768 1,095,375 1,601,807 587 Total $ 42,407,029 $ 32,488,753 $ 5,020,937 Directors & Officers Total IBNR Plus Expected Development on Reported Claims Cumulative Number of Reported Claims Accident Year Incurred Cumulative Paid 2008 $ 379,618 $ 379,619 $ - 26 2009 802,494 802,496-43 2010 941,406 941,405 1 40 2011 1,675,387 1,628,329 47,055 82 2012 1,659,726 1,300,417 359,309 91 2013 1,730,720 1,174,107 556,613 86 2014 2,621,068 1,917,568 604,459 105 2015 3,805,528 1,619,666 1,928,263 96 2016 2,982,394 634,573 1,837,947 75 2017 2,520,067 350,079 984,975 79 Total $ 19,118,408 $ 10,748,259 $ 6,318,622 15

Notes to Financial Statements (Continued) 4. Loss and Loss Adjustment Expense Reserves (Continued) General Liability Total IBNR Plus Expected Development on Reported Claims Cumulative Number of Reported Claims Accident Year Incurred Cumulative Paid 2008 $ 1,937,590 $ 1,937,621 $ - 250 2009 1,910,999 1,910,996 3 293 2010 1,475,886 1,475,854 1 347 2011 1,622,854 1,614,754 8,100 386 2012 1,765,239 1,611,824 976 530 2013 2,160,701 1,711,233 215,473 564 2014 2,790,280 1,963,481 246,032 572 2015 5,597,497 3,347,329 73,626 642 2016 4,513,672 1,966,957 125,519 508 2017 4,725,212 438,268 2,388,002 413 Total $ 28,499,930 $ 17,978,317 $ 3,057,732 Improper Sexual Conduct Total IBNR Plus Expected Development on Reported Claims Cumulative Number of Reported Claims Accident Year Incurred Cumulative Paid 2008 $ 278,372 $ 271,802 $ 6,569 18 2009 593,960 529,998 13,962 22 2010 804,145 791,470 12,675 22 2011 1,228,511 686,558 32,826 15 2012 138,081 138,070 11 26 2013 1,302,191 942,232 41,480 17 2014 653,087 151,281 50,010 4 2015 2,651,692 850,421 15,898 47 2016 1,747,571 149,017 17,020 41 2017 2,892,506 38,664 1,830,193 27 Total $ 12,290,116 $ 4,549,513 $ 2,020,644 16

Notes to Financial Statements (Continued) 4. Loss and Loss Adjustment Expense Reserves (Continued) Social Services Professional Total IBNR Plus Expected Development on Reported Claims Cumulative Number of Reported Claims Accident Year Incurred Cumulative Paid 2008 $ 308,968 $ 308,975 $ - 21 2009 637,748 629,724 8,017 17 2010 1,106,615 1,088,782 17,833 21 2011 607,597 575,183 102 29 2012 1,773,851 1,690,709 58,142 42 2013 2,256,711 1,195,155 45,280 43 2014 2,813,352 1,841,371 301,989 72 2015 2,565,636 797,011 1,149,776 47 2016 3,580,216 144,343 2,895,396 37 2017 3,224,425 27,927 1,774,653 37 Total $ 18,875,119 $ 8,299,180 $ 6,251,188 Umbrella Total IBNR Plus Expected Development on Reported Claims Cumulative Number of Reported Claims Accident Year Incurred Cumulative Paid 2008 $ 54,483 $ 54,484 $ - 2 2009 6,250 6,250-1 2010 125,684 123,170 2,513 4 2011 39,100 33,750 5,350 1 2012 77,781 55,904 21,877 1 2013 116,676 1,083 115,593 1 2014 188,726 61,313 127,413 4 2015 169,535 91,966 15,236 9 2016 256,098-81,098 3 2017 280,328-278,453 3 Total $ 1,314,661 $ 427,920 $ 647,533 Methodology for Determining Losses and Loss Adjustment Expense Reserves Loss reserves are management's best estimate of ultimate losses and are based on the analysis performed by our consulting actuaries. They analyze each portion of our business in a variety of ways and use multiple actuarial methodologies in performing these analyses, including; Bornhuetter-Ferguson (paid and reported) method, paid development method, reported development method, and IBNR to case ratio method. The selected ultimate losses are within the consulting actuaries' range of reasonable levels. 17

Notes to Financial Statements (Continued) 4. Loss and Loss Adjustment Expense Reserves (Continued) Methodology for Determining Incurred But Not Reported Reserves Using generally accepted actuarial reserving techniques, we project our estimate of ultimate losses and loss expenses at each reporting date. Our IBNR reserve is the difference between the projected ultimate losses and loss expenses incurred and the sum of case losses and loss expense reserves and inception-to-date paid losses and loss expenses. Significant Changes in Methodologies and Assumptions There were no significant changes in methodologies or assumptions from 2016. Methodology for Determining Cumulative Number of Reported Claims Reported claim counts represent claim events on a specified policy rather than individual claimants and include claims that did not or are not expected to result in an incurred loss. 5. Reinsurance In the normal course of business, the Company uses excess of loss (both per risk and catastrophe) and quota share reinsurance contracts to limit its exposure to unanticipated loss severity and frequency. For policy years prior to 2008, the Company s reinsurance structure varied, with retention on liability lines ranging from $25,000 to $250,000, and was placed with NANI, rated "A" by A.M. Best. Beginning January 1, 2008, the Company purchased excess of loss reinsurance coverage, for $750,000 excess of Company retention of $250,000 per occurrence. Beginning January 1, 2010, the Company changed its coverage to $650,000 excess of Company retention of $350,000 per occurrence. These coverages were placed with the Company s third-party reinsurer (rated A+ by A.M. Best). Beginning January 1, 2013 the Company changed its excess of loss reinsurance coverage to $550,000 excess of Company retention of $450,000 per occurrence. The Company also maintains an aggregate reinsurance cover of $3 million in excess of $1 million. The aggregate treaty provides for clash coverage on all liability lines except umbrella. Beginning January 1, 2013 the Company diversified risk by placing these coverages with various reinsurers (rated "A" or better by A.M. Best). The Company offers umbrella coverage with a maximum limit of $10 million. Beginning January 1, 2013, umbrella policies are ceded 92.5-100% on a quota share treaty basis based on underlying coverage limits. Beginning January 1, 2013 the Company diversified its risk by placing these coverages with various reinsurers (rated "A" or better by A.M. Best). Umbrella policies were previously ceded 95% on a quota share treaty basis to the Company s third-party reinsurer. Risks reinsured would become an expense of the Company in the event the reinsurers are unable to or will not fulfill the obligations assumed under the agreements. 18

Notes to Financial Statements (Continued) 5. Reinsurance (Continued) The effects of reinsurance ceded on premiums earned and losses, which are stated net of reinsurance on the statements of comprehensive income, are quantified in the table below: 2017 2016 Premium earned $ 10,941,572 $ 10,503,828 Loss and loss adjustment expenses 15,315,594 4,875,495 For the years ended December 31, 2017 and 2016, the Company received ceding commissions of $1,582,470 and $1,418,986, respectively, which are recorded as a reduction to commission expense. The maximum amount of return commission that would have been due to reinsurers if all reinsurance had been cancelled with the return of unearned premium reserves at December 31, 2017 and 2016 was $759,007 and $651,111, respectively. 6. Related Party Transactions The Company has a management agreement with affiliate AMS. Based on the agreement, AMS is responsible for the Company s overall operations, including policy services, claims management, member services, reinsurance negotiations, marketing, accounting and financial management, and general and administration management. The fees charged to the affiliated companies by AMS are determined only to recover the net expenses incurred by AMS. The management and administrative fees for the services provided by AMS were $4,223,929 and $3,833,504 for the years ended December 31, 2017 and 2016, respectively. Reinsurance balances related to NANI include the following as of and for the years ended December 31, 2017 and 2016: 7. Surplus Note 2017 2016 Reinsurance recoverable $ 1,533,830 $ 711,950 Losses recovered 720,996 (5,134) The Company has a surplus note loan agreement with a bank to borrow up to $2 million. The principal balance matures on October 15, 2024 and is payable to the bank with any unpaid interest. Interest is provided on the unpaid balance at an annual rate of 2%, payable in quarterly installments. Any payment of principal or interest is subject to prior written approval of the Insurance Commissioner of the State of Vermont and is subordinated to the prior payment of, or provision for, all general liabilities of the Company and the claims of policyholders and creditors of the Company. At December 31, 2017 and 2016, the principal outstanding under the surplus note was $2 million. After receiving prior written approval from the Insurance Commissioner, the Company paid total accrued interest of $40,000 in both 2017 and 2016. 19

Notes to Financial Statements (Continued) 8. Capital and Surplus The Company is required by the Department to maintain capital and surplus at a minimum of $1 million. The Company s ability to pay policyholder dividends is restricted and subject to regulatory approval. At December 31, 2017 and 2016, the Company s reported capital was in excess of the minimum regulatory requirement. 9. Dividends In December 2007, the Board of Directors adopted a policyholder dividend plan effective January 1, 2008. This plan is designed to reward members for length of continuous coverage as well as for favorable claims experience of the Company as a whole. The Board of Directors retains the sole authority to declare a policyholder dividend. In any year that a policyholder dividend is declared, members who qualify will be entitled to receive a policyholder dividend upon renewal of their policy beginning June 1 through May 31. No policyholder dividends were declared for the 2017-2018 policy year or the 2016-2017 policy year. 10. Contingencies In the normal course of business, lawsuits may arise against the Company. Contingent liabilities arising from litigation and other matters are not considered material in relation to the financial position of the Company. 20

Required Supplemental Information (Unaudited) 21

Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance The following is information about incurred and paid claims development, net of reinsurance and by category for years ended December 31: Auto Liability Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $2,164,329 $2,464,329 $2,464,329 $2,519,334 $2,478,862 $2,403,878 $2,383,868 $2,374,931 $2,374,389 $ 2,374,365 2009 2,339,798 2,139,778 1,938,788 1,736,671 1,769,678 1,772,156 1,795,694 1,805,517 1,805,517 2010 3,061,541 3,261,538 3,196,543 3,328,531 3,268,548 3,223,260 3,222,860 3,222,860 2011 3,115,729 4,046,745 4,074,713 5,078,234 5,052,465 4,927,470 4,927,470 2012 3,321,053 3,260,490 3,760,468 3,710,475 3,535,497 3,651,464 2013 4,506,295 4,406,308 4,462,769 4,762,782 5,125,778 2014 5,276,192 5,276,192 4,907,222 4,678,223 2015 5,879,742 5,879,742 5,629,747 2016 6,370,846 5,835,837 2017 5,155,768 Total $42,407,029 Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 514,247 $1,364,028 $2,064,556 $2,296,728 $2,305,353 $2,307,314 $2,314,406 $2,374,410 $2,374,410 $ 2,374,410 2009 833,426 1,269,297 1,609,431 1,638,301 1,701,576 1,706,364 1,795,716 1,805,497 1,805,497 2010 1,045,635 2,479,592 3,027,726 3,173,415 3,202,353 3,222,755 3,222,876 3,221,764 2011 939,868 2,442,530 3,410,832 4,434,142 4,626,519 4,845,833 4,851,543 2012 962,341 1,596,014 2,683,672 3,023,889 3,337,392 3,650,740 2013 1,041,279 2,488,168 3,528,626 4,499,532 4,846,434 2014 1,424,599 2,906,440 4,043,155 4,326,000 2015 1,296,700 2,680,617 4,085,851 2016 1,170,518 2,231,139 2017 1,095,375 Total 32,488,753 All outstanding liabilities before 2008, net of reinsurance - Liabilities for losses and loss adjustment expenses, net of reinsurance $ 9,918,276 22

Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Directors & Officers Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 517,221 $ 517,221 $ 463,287 $ 463,287 $ 463,287 $ 379,618 $ 379,618 $ 379,618 $ 379,618 $ 379,618 2009 657,518 657,518 969,997 919,999 804,999 815,000 815,000 802,494 802,494 2010 723,905 723,905 773,903 801,902 951,903 951,903 941,406 941,406 2011 916,520 916,520 1,461,187 1,675,387 1,675,387 1,675,387 1,675,387 2012 1,322,723 1,694,726 1,659,726 1,659,726 1,659,726 1,659,726 2013 1,980,727 1,980,727 1,980,727 1,980,727 1,730,720 2014 2,771,076 2,771,076 2,621,068 2,621,068 2015 3,555,513 3,555,513 3,805,528 2016 2,982,126 2,982,394 2017 2,520,067 Total $19,118,408 Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 7,864 $ 167,442 $ 338,443 $ 366,964 $ 379,619 $ 379,619 $ 379,619 $ 379,619 $ 379,619 $ 379,619 2009 70,136 257,982 730,253 753,709 799,598 801,661 802,496 802,496 802,496 2010 46,089 358,169 693,807 749,907 941,405 941,405 941,405 941,405 2011 154,210 512,260 1,106,647 1,544,700 1,610,731 1,618,862 1,628,329 2012 244,835 888,117 1,235,541 1,287,845 1,300,276 1,300,417 2013 180,054 845,266 1,052,419 1,146,391 1,174,107 2014 350,376 1,149,545 1,794,236 1,917,568 2015 159,100 632,987 1,619,666 2016 66,203 634,573 2017 350,079 Total 10,748,259 All outstanding liabilities before 2008, net of reinsurance - Liabilities for losses and loss adjustment expenses, net of reinsurance $ 8,370,149 23

Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance General Liability Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $2,105,247 $2,055,253 $2,055,253 $2,055,253 $1,805,239 $1,685,244 $1,685,244 $1,675,574 $1,781,994 $ 1,937,590 2009 2,098,359 2,098,359 2,098,359 2,034,802 1,769,803 1,712,308 1,666,097 1,660,968 1,910,999 2010 1,881,787 1,881,787 1,881,787 1,531,775 1,455,751 1,530,740 1,475,650 1,475,886 2011 1,970,081 1,970,081 1,970,081 1,840,105 1,819,025 1,722,885 1,622,854 2012 2,243,426 2,243,426 2,043,424 2,043,424 1,795,245 1,765,239 2013 2,925,302 2,925,302 2,925,302 2,925,302 2,160,701 2014 3,705,060 3,705,060 3,605,764 2,790,280 2015 4,213,954 4,463,944 5,597,497 2016 4,513,672 4,513,672 2017 4,725,212 Total $28,499,930 Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 253,262 $ 818,382 $1,133,615 $1,550,836 $1,627,046 $1,675,534 $1,675,534 $1,675,534 $1,740,545 $ 1,937,621 2009 358,612 547,512 869,924 1,242,114 1,617,092 1,660,043 1,660,831 1,660,996 1,910,996 2010 326,313 768,621 916,290 1,111,394 1,146,908 1,432,317 1,475,644 1,475,854 2011 264,585 717,964 1,252,274 1,482,910 1,603,431 1,611,087 1,614,754 2012 276,302 580,016 1,118,935 1,395,978 1,547,116 1,611,824 2013 314,320 802,730 1,433,255 1,645,675 1,711,233 2014 654,678 1,198,076 1,772,188 1,963,481 2015 469,215 1,382,549 3,347,329 2016 484,996 1,966,957 2017 438,268 Total 17,978,317 All outstanding liabilities before 2008, net of reinsurance - Liabilities for losses and loss adjustment expenses, net of reinsurance $10,521,613 24

Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Improper Sexual Conduct Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 923,015 $1,048,022 $ 948,013 $ 608,021 $ 608,021 $ 528,011 $ 378,021 $ 378,021 $ 271,797 $ 278,372 2009 905,956 905,956 905,956 905,956 905,956 905,956 743,956 593,960 593,960 2010 904,296 904,296 904,296 904,296 904,296 916,293 916,293 804,145 2011 920,222 920,222 920,222 920,222 920,222 920,222 1,228,511 2012 930,295 930,295 660,293 560,291 560,291 138,081 2013 1,131,822 1,131,822 1,131,822 1,381,824 1,302,191 2014 1,408,090 1,408,090 1,188,102 653,087 2015 1,960,960 1,960,960 2,651,692 2016 1,597,569 1,747,571 2017 2,892,506 Total $12,290,116 Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 14,112 $ 30,789 $ 45,588 $ 79,442 $ 271,802 $ 271,802 $ 271,802 $ 271,802 $ 271,802 $ 271,802 2009 2,502 25,995 69,668 309,892 416,533 527,567 529,998 529,998 529,998 2010 15,694 31,958 138,791 271,582 352,254 570,497 620,530 791,470 2011 2,657 22,462 73,824 492,760 523,351 596,192 686,558 2012 2,673 71,456 125,263 136,963 137,688 138,070 2013 39,583 439,593 478,936 819,714 942,232 2014 15,534 40,897 127,917 151,281 2015 11,476 548,593 850,421 2016 21,588 149,017 2017 38,664 Total 4,549,513 All outstanding liabilities before 2008, net of reinsurance 215,672 Liabilities for losses and loss adjustment expenses, net of reinsurance $ 7,956,275 25

Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Social Services Professional Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $1,009,074 $ 834,070 $ 684,075 $ 634,069 $ 634,069 $ 574,073 $ 374,072 $ 308,971 $ 308,971 $ 308,968 2009 1,103,042 840,184 840,184 840,184 665,186 665,186 665,186 665,186 637,748 2010 911,620 911,620 911,620 1,496,619 1,446,623 1,446,623 1,146,622 1,106,615 2011 847,602 847,602 847,602 847,602 847,602 847,602 607,597 2012 966,413 966,413 1,746,419 1,746,419 1,746,419 1,773,851 2013 1,451,705 1,651,713 1,651,713 2,171,696 2,256,711 2014 2,033,357 2,033,357 2,383,365 2,813,352 2015 2,565,636 2,565,636 2,565,636 2016 3,280,218 3,580,216 2017 3,224,425 Total $18,875,119 Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 1,256 $ 8,281 $ 273,091 $ 273,887 $ 282,323 $ 297,998 $ 308,975 $ 308,975 $ 308,975 $ 308,975 2009 8,765 75,364 353,487 378,369 389,573 450,159 629,724 629,724 629,724 2010 10,184 385,595 626,233 974,663 994,813 1,006,841 1,088,781 1,088,782 2011 14,651 213,695 321,950 361,227 555,299 570,458 575,183 2012 14,651 216,940 1,321,585 1,390,632 1,686,901 1,690,709 2013 4,258 471,900 579,105 969,143 1,195,155 2014 21,093 430,293 918,618 1,841,371 2015 25,036 263,716 797,011 2016 46,403 144,343 2017 27,927 Total 8,299,180 All outstanding liabilities before 2008, net of reinsurance - Liabilities for losses and loss adjustment expenses, net of reinsurance $10,575,939 26

Incurred and Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Umbrella Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 72,623 $ 72,623 $ 72,623 $ 72,623 $ 72,623 $ 72,623 $ 72,623 $ 48,300 $ 48,300 $ 54,483 2009 75,548 75,548 75,548 75,548 75,548 75,548 - - 6,250 2010 84,774 84,774 84,774 111,875 111,875 100,500 99,684 125,684 2011 95,459 95,459 95,459 9,549 39,100 39,100 39,100 2012 114,465 114,465 114,465 76,695 77,781 77,781 2013 155,110 155,110 155,110 155,110 116,676 2014 188,726 188,726 188,726 188,726 2015 169,535 169,535 169,535 2016 256,098 256,098 2017 280,328 Total $ 1,314,661 Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ - $ - $ - $ 48,234 $ 48,234 $ 48,234 $ 48,234 $ 48,234 $ 48,234 $ 54,484 2009 - - - - - - - - 6,250 2010-50,000 50,000 70,001 70,001 89,684 89,684 123,170 2011-33,750 33,750 33,750 33,750 33,750 33,750 2012 - - - - 76,263 55,904 2013 - - 1,083 1,083 1,083 2014-41,277 61,313 61,313 2015 - - 91,966 2016 - - 2017 - Total 427,920 All outstanding liabilities before 2008, net of reinsurance - Liabilities for losses and loss adjustment expenses, net of reinsurance $ 886,741 27