Chubb Group of insurance Companies APPLICATION FINANCIAL INSTITUTION BOND 15 Mountain View Road, PO. Box 1615, Warren, NJ 07061-1615 INSURANCE COMPANIES UNDERWRITTEN IN TEXAS PACIFIC INDEMNITY COMPANY Please answer all of the following inquiries. If the COMPANY agrees to issue a bond, all of the information which the Applicant provides will become part of any bond issued to the Applicant by Texas Pacific Indemnity Company. Any misrepresentation, omission, concealment or incorrect statement of a material fact in this APPLICA- TION will be grounds for recision. Please note: The term Applicant as used in this APPLICATION refers to all entities for which coverage is desired. It is agreed that coverage is desired only for those entities listed on the Schedule of Proposed Named Assured. 1. a. Name of Proposed First Named Assured: A. GENERAL INFORMATION b. Address of Proposed First Named Assured: (StreetAddress) (City) (State) (Zip Code) c. Date founded: 2. Please complete the Schedule of Proposed Named Assured under Section J. 3. With respect to the Applicant, please provide the total number of: a. Employees: b. Branch Offices: (1) Domestic (2) Foreign f. Assets (as of ) $ (date) 4. Name of Principal Bank(s): 5. Does the Applicant anticipate in the next twelve (12) months: a. Establishing or entering into any related or unrelated ventures? b. Providing any new services? If yes to either or both, please provide, on a separate sheet, full details. Form 17.03.0093.TPI (Ed. 9-95) Page 1 of 9
6. a. What is the Applicant s most recent rating by A.M. Best Company? as of (date) b. Is this a change from the previous year s rating? If yes, please provide, on a separate sheet, full details. 7. With respect to the Applicant: a. Does any person or related persons have an interest of ten percent (10%) or more of the Applicant s voting stock? If yes, please attach a schedule listing the names and ownership percentages of those individuals. b. Does any person or related persons on the Applicant s Board of Directors hold the proxy or other power of ten percent (10%) or more of the voting rights? If yes, please attach a list of the names of those individuals. c. Has any transfer or acquisition of ten percent (10%) or more of the Applicant s voting stock by any person or related persons taken place within the previous three (3) years? If yes, please attach a schedule indicating the transfer(s), date(s) and individual(s) involved. 8. Have there been any changes in the Applicant s senior management or on its Board of Directors within the previous three (3) years? If yes, please provide, on a separate sheet, full details as to the changes and the reasons for those changes. 9. Has there been any disciplinary action taken against the Applicant during the previous three (3) years by any regulatory authority including, but not limited to, consent agreements, special situation agreements, cease and desist orders, or similar restrictions? If yes, please provide, on a separate sheet, full details. 10. Has any regulatory authority or outside certified public accounting firm (CPA) noted a lack of timeliness or absenteeism of Directors at Directors meetings in the previous three (3) years? If yes, please provide, on a separate sheet, full details of such notations. 1. Does the Applicant currently maintain the following: B. ORGANIZATIONAL PROCEDURES a. Operations manual for all operating divisions? b. Written investment policy? c. Written security policy? d. Written loan policy? e. Written code of ethics? Page 2 of 9
f. Asset/Liability management policy? g. Annual reporting and review of outside business interests of all Directors and Officers? h. A standard procedure for investigating and verifying employees prior to their employment? 2. Does the Applicant require annual vacations of at least 2 consecutive weeks for all employees? C. AUDITING PRACTICES 1. With respect to Internal Audits: a. Does the Applicant employ an internal auditor? If yes, is the auditor s position full-time? b. Does the auditor report directly to the Audit Committee of the Board of Directors? c. Is the auditor an Officer? d. Please indicate the number of full-time employees assigned to the audit department. e. Does the audit department conduct at least an annual surprise audit at all locations? f. Has the Applicant met the scope and objectives of the formalized internal audit plan during the past two (2) years? If no, please explain: 2. With respect to External Audits: a. Has the Applicant made provisions for an annual audit program to be conducted by an outside certified public accounting firm (CPA)? b. Has the CPA rendered an unqualified opinion for each of the last three (3) years? c. Has there been any change in the CPA used by the Applicant in the last three (3) years? If yes, please explain: d. Has the Applicant complied with all recommendations made as a result of its most recent audit? If no, please attach a schedule explaining any noncompliance with such recommendations. e. Does the Applicant plan any change in the audit program? Form 17-03-0093.TPI (Ed. 9-95) Page 3 of 9
f. Does the CPA report directly to the Audit Committee of the Board of Directors? 3. Are all of the entities listed in Section J subject to the same outside audits and applicable internal controls, procedures and appropriate physical security standards? If no, please provide, on a separate sheet, full details, 4. Does the CPA audit include the verification of all branch office accounts where such branches maintain separate collection facilities? 5. During branch office audits, are unpaid premium accounts verified by audit letter or personal telephone call? YES Cl NO 6. Are all Policy terminations verified? 7. Does the CPA conduct any examinations at times other than at customary periods? D. CASH MAINTENANCE 1. a. Are all bank balances reconciled monthly? b. If reconciled at periods other than at month-end, please state when such reconciliations are made: 2. Are dates of reconciliation ever varied for purpose of surprise verifications? 3. Are bank reconciliations made by others than those who customarily handle cash? 4. Are employees who customarily handle your funds on deposit or issue checks empowered to obtain bank statements or cancelled vouchers by calling on your depositories? 5. What method, if any, have you adopted in connection with the recording of transfers of funds from one bank account to another? 6. Does your CPA make a second reconciliation of bank balances and petty cash funds as a part of their audit procedure? 7. Are such petty cash funds inspected at irregular intervals by other than the petty cashier and verified that they agree with the ledger balance? 8. Is the petty cash at branch offices in the form of currency or checking accounts at the bank? 9. What procedure is adopted to verify the funds maintained at branches? 10. Do signing officers and powers-of-attorney alternate their duties in respect to handling expense checks, payroll checks, brokers checks, and other disbursements by checks? Page 4 of 9
11. Is your payroll account audited? If yes, how often is it audited? E. BRANCH OPERATIONS 1. Does the Applicant have branch operations? If yes, please answer questions 2-8. If no, please proceed to Section F. 2. Are your branches combined collection, service and sales organizations? 3. Does each branch have a bank account? If yes, in whose name? 4. Can withdrawals be made for: a. Expenses and branch payrolls? b. Payments to policyholders? 5. Do branch managers possess authority to draw for unlimited sums upon either branch or main office bank accounts? 6. Are such withdrawals first authorized by wire, or otherwise, by the main office? 7. What restrictions, if any, are placed upon such withdrawals by the main office? 8. Does such authority extend to the endorsement of checks other than those issued at your branches? F. SECURITIES/INVESTMENTS 1. To whom does the Investment/Treasurer Department report? 2. Is there an Investment Committee to set policy and procedures? If yes, how often does it meet? 3. Are all purchase and sales transactions reconciled by someone other than the person who initiated the transactions? 4. Where do you safe keep your securities? a. If in a bank, which bank? Form.17-03.0093-TPI (Ed. 9-95) Page 5 of 9
b. If on own premises, give a brief description of your safes and vaults: 5. Do deposits or withdrawals of securities require two employees? 6. How often are securities in safekeeping and in segregation physically counted and verified with your stock records? 7. Are such verifications made by persons other than those who customarily handle securities? 8. Do any of your records contain the certificate numbers of all stocks and bonds received and delivered by you? 9. Does your CPA audit include a count of all securities? 10. If a stock company, who transfers your securities? G. LOSS EXPERIENCE 1. a. Has the Applicant at any time during the past six (6) years put its insurance carrier on notice of any potential or actual losses under its bond program? If yes, please provide, on a separate sheet, full details, including corrective actions taken as a result of such loss. b. If the Applicant has not had a bond at any time during this period, have there been any losses that would have been submitted under a bond program if the Applicant had such bond? 2. Please summarize: q N/A a. Any litigation/legal action settled within the past three (3) years or now pending that is not listed in question 1. immediately above; and/or b. Any action which the Applicant has reason to anticipate may be filed against it or any Director, Officer or Employee, which would be a subject of coverage under a bond program. If necessary, please provide, on a separate sheet, full details. If not, please check NONE H. OTHER INFORMATION 1. Are all expense bills, both at the main office and branches, duly approved and properly vouchered before payment is authorized or made? 2. What system presently exists at your office relative to: a. The purchase of office equipment and supplies? Page 6 of 9
b. The approval of the expense vouchers? 3. If a mutual company, what methods have been adopted to prevent employees from paying dividends to themselves instead of to policyholders? 4. Does your own staff adjust policyholders claims? If yes, is there a limit as to the amount of the claim which they can settle? 5. Please attach the following Applicant information with this completed APPLICATION: a. Most recent Fiscal Year Audited Financial Statement. (1) CPA Letter of Recommendation to Management. (2) Management s written response to CPA Letter of Recommendation. b. Most recent Annual Report. c. Most recent Insurance Company Convention Statement. I. REQUESTED COVERAGES INSURING CLAUSES LIMITS 1. 2. 3. 4. 5. Dishonesty On Premises In Transit Forgery or Alteration Extended Forgery DEDUCTIBLE $ $ $ Form 17.03-0093.TPI (Ed. 9-95) Page 7 of 9
J. SCHEDULE OF PROPOSED NAMED ASSURED First Named Assured: Name of Proposed Assured Date Created or Acquired State Percent of of Incorp. Ownership Nature of Business Domestic or Foreign Name of Parent Institution Financial Information for Most Recent Year End Total Total Net Revenues Assets Income (in Millions) Additional i Assureds: This information is attached to and forms a part of the APPLICATION. *If not applicable, please indicate as being so.
The undersigned persons declare that to the best of their knowledge the statements set forth above and in any attachments to this APPLICATION are true and correct, and that every reasonable effort has been made to obtain sufficient information to facilitate the proper and accurate completion of this APPLICATION. The undersigned agree that if any significant change in the condition of the Applicant is discovered between the date of this APPLICATION and the effective date of the bond which would render this APPLICATION inaccurate or incomplete, notice of such change will be reported in writing to the COMPANY immediately and, if necessary, any outstanding quotation may be modified or withdrawn. The undersigned persons understand and further agree that the completion and signing of this APPLICATION neither binds the COMPANY to sell nor the Applicant to purchase the insurance. Please note: ONLY CHUBB APPOINTED AGENTS AND LICENSED BROKERS ARE AUTHORIZED TO SOLICIT AP- PLICATIONS FOR COVERAGE. AGENTS AND BROKERS ARE NOT AUTHORIZED TO BIND COVERAGE. NO COVERAGE SHALL BE PROVIDED UNLESS THE COMPANY ACCEPTS THE APPLICATION AND BINDS THE COV- ERAGE. False Information: Any person who, knowingly and with intent to defraud any insurance company or other person, files an Application for insurance containing any false information, or conceals for the purpose of misleading, information concerning any material fact thereto, commits a fraudulent insurance act, which is a crime. Proposed First Named Assured: BY Signature of Chief Executive Officer (or other Senior Officer if the Chief Executive Officer is also the Chairman, Board of Directors) BY Signature of Chairman, Board of Directors Date Date A bond cannot be issued unless the APPLICATION is properly signed and dated by the Chief Executive Officer (or other senior officer if the Chief Executive Officer is also the Chairman, Board of Directors) and the Chairman, Board of Directors. NOTE: The APPLICATION and all attachments shall be treated in strictest confidence. Form 17-03-0093.TPI (Ed. 9-95) Page 9 of 9