D.O.W.C. Randall Rabbitt Executive Vice President, National Sales - - PowerPoint PPT Presentation

DEA DEALER ER OWN WNED ED WA WARRANTY CORP.

D.O.W.C.

Randall Rabbitt

Executive Vice President, National Sales Director

Jim Smolich

Chief Financial Officer

 Since 1975  Oldest licensed

Warranty Company in Florida

 Inventors of

D.O.W.C.’s

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

WHAT IT IS

Gives you the dealer, greater overall return of premium capital due to:

• Long Term Tax Deferral
• Elimination of fees and taxes
• Greater Investment returns

DOWC qualifies for insurance company treatment for federal tax purposes, allowing for taxation only on investment income if net written premium is less than $1.2 million. $0 Tax on underwriting profit with small insurance company status

WHAT IT DOES

• You, the Dealer, are set up in your own Admin Obligor (AO) DOWC, which is

perfect for your needs, goals and growth.

• You retain 100% of the underwriting profit and investment income.
• All of the cash remains in your control, and all of the investment decisions

are made by you.

• You decide ownership, and all DOWC decisions are retained by you. There is

no co-mingling of funds and you receive all of the benefits with no risk.

• Collectively we will design your program, customizing rates, coverages

(better than factory if you so choose) and marketing materials.

• We never touch/control your cash. YOU send YOUR money to YOUR

investment account, monthly or weekly.

HOW IT’S DONE

• We control 100% of the administration including claims and accounting.
• You have immediate claims override authority.
• Reports are online daily, password protected. Monthly, we do a balance sheet

and income statement for your company along with a myriad of detailed/customized reports.

• USWC has been vetted by AutoNation, Toyota, National City Bank, Key bank

and some of the most prestigious and successful dealers in the US.

• We currently do business with all of the above and are 100% transparent and

willing to share any of our financial info with you the dealer and/or your representatives.

HOW IT’S DONE

• Significant cash flow
• Wealth building tool
• Estate planning-wealth transfer
• You keep 100% of underwriting profit and investment income
• Future Growth
• Total Return- 25-50% more return than other available options in

the dealer market

• Total control of investment decisions
• Total control of design including rates, coverages, marketing

materials and DOWC name

• Long term tax deferral due to insurance company treatment
• Distributions treated as dividends

• Assets outside of the dealerships which assumes the obligation of

the service contract

• Separate entity with no tie to dealership capital or dealers

personal assets

• “Crystal Ball” look forward
• CLP provided by Allstate
• Capital loans “no loan fees or handling charges”
• Loans back to dealership to buy own floor plan
• Capital improvements
• Acquisitions
• Rainy day fund
• Investment income and underwriting profit far outpace other

programs available to the automotive market

USWC handles all of the day to day operations of your DOWC

• Extremely lower Admin costs
• No ceding fees
• No premium taxes
• No excise taxes
• No annual maintenance fees
• No loss adjustment fees
• No claims fees
• No segregated cell fees
• No trust fees
• No run-off fees
• No “just because” fees
• No hidden fees

You the dealer will know where every dollar is every day

TOTAL TRANSPARENCY

5 year service contract $2,500.00 $1,000.00 $1,500.00 Earnings Year 1 Year 2 Year 3 Year 4 Year 5 $500 $500 $500 $500 $500 F&I Commission Expense <$1500> <$1425> <$925> <$425> <$275> <$925> <$425> $75 *$225 Admin Fee Expense <$125> Dealer Pack Expense <$300> Claim Expense <$_______> <$_______> <$_______> <$350>

(Franchise Specific)

Total Expenses <$1925> <$275> $500 <$1425> * As policies layer on top of each

• ther, DOWC normally becomes

taxable in years 8-12

TAX DEFERRAL

Assumptions: Taxable Income Selling Price (Retail Premium) F&I Cost F&I Profit (Commission) Taxable Income Estimated 5 Year

10 YEAR - PROFORMA ASSUMPTIONS

10

Capitalization Interest Rate Compounded Annually 5.00% Federal Income Tax 32.20% State Income Tax 5.30% 1 $7,027 Term Policies Written Annually Average Premium Gross Written Premium Term Policies Written Annually Average Premium Gross Written Premium Term Policies Written Annually Average Premium Gross Written Premium 12 $0 12 $0 24 $0 24 $0 36 600 $1,800 $1,080,000 36 $0 36 $0 48 $0 48 $0 48 $0 60 300 $1,800 $540,000 60 $0 60 $0 72 600 $1,800 $1,080,000 84 300 $1,800 $540,000 120 $0 1,800 $1,800 $3,240,000 $0 $0 Annual Increase Contracts Written (%) Annual Increase Contracts Written (%) Annual Increase Contracts Written (%) 50.00% 17.00% ENTER $$ $125 ENTER $$ ENTER $$ OR % OR % OR % ROAD HAZARD PROTECTION PLAN

Sample Proforma - Nissan

VEHICLE SERVICE CONTRACT PRE-PAID MAINTENANCE

How Many Years of Writing?

Dealer Commission Dealer Commission Dealer Commission Projected Loss Ratio Projected Loss Ratio Projected Loss Ratio Administration Fee - Include CLI for Non-Florida Business Administration Fee - Include CLI for Non-Florida Business Administration Fee - Include CLI for Non-Florida Business

NOTES Loss Based on USWC Experience

1st YEAR 2nd YEAR 3rd YEAR 4th YEAR 5th YEAR 6th YEAR 7th YEAR 8th YEAR 9th YEAR 10th YEAR Description Model Model Model Model Model Model Model Model Model Model Summary Deferred Acq. Cost 1,655,734 2,898,710 3,728,930 4,239,872 4,542,851 4,666,067 4,689,867 4,689,867 4,689,867 4,689,867 Unearned Premium Reserve 2,907,630 5,090,418 6,548,364 7,445,628 7,977,690 8,194,068 8,235,864 8,235,864 8,235,864 8,235,864 Earned Premium 332,370 1,057,212 1,782,054 2,342,736 2,707,938 3,023,622 3,198,204 3,240,000 3,240,000 3,240,000 24,164,136 32,400,000 Investment Income 33,462 98,980 161,612 221,912 281,292 340,748 381,575 420,552 460,075 500,834 2,901,042 6,047,676 Total Income 365,832 1,156,192 1,943,666 2,564,648 2,989,230 3,364,370 3,579,779 3,660,552 3,700,075 3,740,834 27,065,178 38,447,676 Claims 56,503 179,726 302,949 398,265 460,349 514,016 543,695 550,800 550,800 550,800 4,107,903 5,508,000 Dealership Commission (Amortized) 166,185 528,606 891,027 1,171,368 1,353,969 1,511,811 1,599,102 1,620,000 1,620,000 1,620,000 12,082,068 16,200,000 Override Commission Salaries/Bonuses/Overhead Administration Fee (Amortized) 23,081 73,418 123,754 162,690 188,051 209,974 222,098 225,000 225,000 225,000 1,678,065 2,250,000 Total Expenses 245,769 781,750 1,317,730 1,732,323 2,002,370 2,235,800 2,364,894 2,395,800 2,395,800 2,395,800 17,868,036 23,958,000 Profit Before Taxes 120,063 374,442 625,936 832,325 986,861 1,128,569 1,214,885 1,264,752 1,304,275 1,345,034 9,197,142 14,489,676 Tax Basis Calculation: Unearned Premium Reserve Chng @ 20% 581,526 436,558 291,589 179,453 106,412 43,276 8,359 1,647,173 (0) Deferred Acq. Cost Change @ 100% (1,655,734) (1,242,977) (830,219) (510,942) (302,980) (123,215) (23,801) (4,689,867) Adjusted Tax Basis (954,144) (431,977) 87,306 500,836 790,293 1,048,630 1,199,443 1,264,752 1,304,275 1,345,034 8,335,228 Total Tax Loss Carried Forward Balance (954,144) (1,386,121) (1,298,815) (797,979) (7,686) Less: Applicable Tax Loss Carried Forward 1,040,944 Taxable Income 1,040,944 1,199,443 1,264,752 1,304,275 1,345,034 6,154,448 14,489,676 Taxable Income 1,040,944 1,199,443 1,264,752 1,304,275 1,345,034 6,154,448 14,489,676 Federal Income Taxes @ 32.20% 335,184 386,221 407,250 419,977 433,101 1,981,732 4,665,676 State Income Taxes @ 5.30% 55,170 63,570 67,032 69,127 71,287 326,186 767,953 Profit After Taxes 120,063 374,442 625,936 832,325 986,861 738,215 765,093 790,470 815,172 840,646 6,889,224 9,056,047 Cumulative Profit After Taxes 120,063 494,506 1,120,442 1,952,767 2,939,627 3,677,843 4,442,936 5,233,406 6,048,578 6,889,224 Less: Dividends Paid Net Worth (Includes Initial Capital) 120,063 494,506 1,120,442 1,952,767 2,939,627 3,677,843 4,442,936 5,233,406 6,048,578 6,889,224 Investable Balance for Investment Income Calculation 1,371,960 2,686,213 3,939,876 5,158,523 6,374,466 7,205,844 7,988,933 8,779,403 9,594,575 10,435,221 Admitted Net Worth 120,063 494,506 1,120,442 1,952,767 2,939,627 3,677,843 4,442,936 5,233,406 6,048,578 6,889,224 Less: Net Worth Required 145,382 254,521 654,836 744,563 797,769 819,407 823,586 823,586 823,586 823,586 Cash or Loans Available for Distribution

• 239,985

465,605 1,208,204 2,141,858 2,858,436 3,619,350 4,409,820 5,224,992 6,065,638 18,000 # of Service Co Years = $8,780,199 Profit After Tax Years Production = IBT IAT

IAT

IBT $488 16,200,000 16,200,000 Dealer Commissions 50% 50% Override Commissions 0% 0% Other Distributions 0% 0% 14,489,676 9,056,047 Profit (Und. + Inv. Inc.) 28% 45% 30,689,676 25,256,047 Total Return 78% 95%

Tax Effected

FULLY EARNED SUMMARY The assumptions and methods, set forth in a separate portion of this proforma, are an integral part of the proforma and should be read in connection with a study of the proforma. Actual activity and experience could differ from the assumptions and methods used in this proforma. Total Return of Premium # of Service Contracts Written Over 10 Years = Profit After Taxes on 10 Years Production = Additional Profit per Service Contract Sold =

$32,400,000.00 Net Written Premium 100.00%

• $16,200,000.00

Dealership Commission Expense 50.00% $16,200,000.00 50.00%

• $2,250,000.00

Administration Expense 6.94% $13,950,000.00 43.06%

• $5,508,000.00

Claims 17.00% $8,442,000.00 Underwriting Profit 26.06% $6,047,675.93 Investment Income 18.67%

• $5,433,628.47

Federal and State Taxes 16.77% $9,056,047.46 Total Back-End Profit 27.95% Total Return of Premium $16,200,000.00 Dealership Sale Commission 50.00% $9,056,047.46 Back-End Profit 27.95% $25,256,047.46 Total Return 77.95%

Sample Proforma - Nissan - Profit & Loss Model Tax Effected 150 Contracts Per Month

1st YEAR 2nd YEAR 3rd YEAR 4th YEAR 5th YEAR 6th YEAR 7th YEAR 8th YEAR 9th YEAR 10th YEAR Description Model Model Model Model Model Model Model Model Model Model Summary Deferred Acq. Cost 1,655,734 2,898,710 3,728,930 4,239,872 4,542,851 4,666,067 4,689,867 4,689,867 4,689,867 4,689,867 Unearned Premium Reserve 2,907,630 5,090,418 6,548,364 7,445,628 7,977,690 8,194,068 8,235,864 8,235,864 8,235,864 8,235,864 Earned Premium 332,370 1,057,212 1,782,054 2,342,736 2,707,938 3,023,622 3,198,204 3,240,000 3,240,000 3,240,000 24,164,136 32,400,000 Investment Income 33,462 98,980 161,612 221,912 281,292 340,748 401,093 463,535 504,402 546,545 3,053,581 6,543,276 Total Income 365,832 1,156,192 1,943,666 2,564,648 2,989,230 3,364,370 3,599,297 3,703,535 3,744,402 3,786,545 27,217,717 38,943,276 Claims 56,503 179,726 302,949 398,265 460,349 514,016 543,695 550,800 550,800 550,800 4,107,903 5,508,000 Dealership Commission (Amortized) 166,185 528,606 891,027 1,171,368 1,353,969 1,511,811 1,599,102 1,620,000 1,620,000 1,620,000 12,082,068 16,200,000 Override Commission Salaries/Bonuses/Overhead Administration Fee (Amortized) 23,081 73,418 123,754 162,690 188,051 209,974 222,098 225,000 225,000 225,000 1,678,065 2,250,000 Total Expenses 245,769 781,750 1,317,730 1,732,323 2,002,370 2,235,800 2,364,894 2,395,800 2,395,800 2,395,800 17,868,036 23,958,000 Profit Before Taxes 120,063 374,442 625,936 832,325 986,861 1,128,569 1,234,402 1,307,735 1,348,602 1,390,745 9,349,681 14,985,276 Taxable Income 1,307,735 1,348,602 1,390,745 4,047,082 14,985,276 Federal Income Taxes @ 32.20% 421,091 434,250 447,820 1,303,160 4,825,259 State Income Taxes @ 5.30% 69,310 71,476 73,710 214,495 794,220 Profit After Taxes 120,063 374,442 625,936 832,325 986,861 1,128,569 1,234,402 817,334 842,876 869,216 7,832,025 9,365,797 Cumulative Profit After Taxes 120,063 494,506 1,120,442 1,952,767 2,939,627 4,068,197 5,302,599 6,119,933 6,962,809 7,832,025 Less: Dividends Paid Net Worth (Includes Initial Capital) 120,063 494,506 1,120,442 1,952,767 2,939,627 4,068,197 5,302,599 6,119,933 6,962,809 7,832,025 Investable Balance for Investment Income Calculation 1,371,960 2,686,213 3,939,876 5,158,523 6,374,466 7,596,198 8,848,596 9,665,930 10,508,806 11,378,022 Admitted Net Worth 120,063 494,506 1,120,442 1,952,767 2,939,627 4,068,197 5,302,599 6,119,933 6,962,809 7,832,025 Less: Net Worth Required 145,382 254,521 654,836 744,563 797,769 819,407 823,586 823,586 823,586 823,586 Cash or Loans Available for Distribution

• 239,985

465,605 1,208,204 2,141,858 3,248,790 4,479,013 5,296,347 6,139,223 7,008,439 18,000 # of Service Co Years = $9,457,065 Profit After Tax Years Production = IBT IAT

IAT

IBT $525 16,200,000 16,200,000 Dealer Commissions 50% 50% Override Commissions 0% 0% Other Distributions 0% 0% 14,985,276 9,365,797 Profit (Und. + Inv. Inc.) 29% 46% 31,185,276 25,565,797 Total Return 79% 96%

Tax Effected - Claims Based

FULLY EARNED SUMMARY The assumptions and methods, set forth in a separate portion of this proforma, are an integral part of the proforma and should be read in connection with a study of the proforma. Actual activity and experience could differ from the assumptions and methods used in this proforma. Total Return of Premium # of Service Contracts Written Over 10 Years = Profit After Taxes on 10 Years Production = Additional Profit per Service Contract Sold =

$32,400,000.00 Net Written Premium 100.00%

• $16,200,000.00

Dealership Commission Expense 50.00% $16,200,000.00 50.00%

• $2,250,000.00

Administration Expense 6.94% $13,950,000.00 43.06%

• $5,508,000.00

Claims 17.00% $8,442,000.00 Underwriting Profit 26.06% $6,543,275.59 Investment Income 20.20%

• $5,619,478.35

Federal and State Taxes 17.34% $9,365,797.24 Total Back-End Profit 28.91% Total Return of Premium $16,200,000.00 Dealership Sale Commission 50.00% $9,365,797.24 Back-End Profit 28.91% $25,565,797.24 Total Return 78.91%

Sample Proforma - Nissan - Profit & Loss Model Tax Effected - Claims Based 150 Contracts Per Month

Description DOWC CFC NCFC Premium Earned or Ceded 35,292,000 9,155,730 9,155,730 Investment Income 6,801,109 2,118,000 2,198,154 Total Income 42,093,109 11,273,730 11,353,884 Claims 4,587,960 4,587,960 4,587,960 Dealership Commission (Amortized) 20,822,280 n/a n/a Override Commission Salaries/Bonuses/Overhead Administration Fee (Amortized) 3,114,000 n/a n/a Premium Tax n/a 119,024 119,024 Ceding Fees n/a 274,672 366,229 Excise Tax n/a n/a 91,557 Total Expenses 28,524,240 4,981,656 5,164,771 Profit Before Taxes 13,568,869 6,292,073 6,189,113 Federal Income Taxes @ 32.20%; @ 20.00% for NCFC 4,369,176 741,300 1,237,823 State Income Taxes @ 6.5% 881,977 Profit After Taxes 8,317,717 5,550,773 4,951,290 Cumulative Profit After Taxes 8,317,717 5,550,773 4,951,290 Less: Dividends Paid Net Worth (Includes Initial Capital) 8,317,717 5,550,773 4,951,290 Investable Balance for Investment Income Calculation 8,317,717 5,550,773 4,951,290 Captive Insurance Company Comparison

During warehouse period: Dealer forms Corporation and decides ownership Coverage and Form Creation



USWC’s compliance department handles all DOWC licensing and state/lender approvals, as needed



In conjunction with USWC, you the dealer will decide on coverage and rate structures for VSC, pre-paid Maintenance, Road Hazard and Etch and Combo products “4 in 1”



Set kick off date

• USWC team conducts thorough and comprehensive Kick Off involving F&I, Sales, Service and back
• ffice.

Accounting



Decide on investment banker/strategy



Retain and control 100% of reserves/underwriting profits/investment income



Determine ownership: Estate Planning, Golden Handcuffs, Wealth Building, etc.



Upon licensing, 100% ceding less claims and admin fees Rates and Underwriting



Establish guidelines and eligibility; determine policy goodwill



Determine transmittal process- E Contracting/Online Entry/USPS



Establish dealer cost, any packs, commissions

Claims

• Decide claims parameters: part costs & labor

rates, pre-existing conditions, good will and approval guidelines

• Establish claim payment guidelines
• Parts – Cost plus, List less
• Labor – Factory (recommended) All Data, Mitchell
• Establish parameters for the use of third party

inspectors for questionable claims

• Establish transient claim guidelines
• USWC currently returns 87.6% of all claim dollars back to selling

dealer/group.

• Lower admin costs
• Elimination of fees and taxes
• NO ceding fees, claims fees, premium taxes, excise taxes, annual maintenance fees, loss adjustment

expenses and/or claims fees, segregated cell fees, trust expenses, etc…

• Long term Tax Deferral and Tax Advantages
• Taxation only on investment income
• $0 Tax of underwriting profit
• Templates customized to dealers needs/wishes
• Greater Investment Returns
• Estate planning-wealth building-capital acquisitions
• Total Dealer Control
• Customize service contract programs including 3/3-Lifetime, Pre-Paid Maintenance, Etch, Tire & Wheel and

Combo Products

• Full suite of monthly Financial Reports (including balance sheet and income statement) online 24/7, password

protected

• Dealer knows where every dollar is every day
• USWC will compile a comprehensive side by side analysis against your current program, resulting

in 25-50% overall greater returns/savings.

• Innovative package of aggressively priced, customized F&I and front end products, as well as in

store training and income development capital.

• Dividend treatment of distributions
• Capital loans available
• Fully supported by a 40 year old company which invented and specializes in DOWC’s

Mark Macek

President

Office Phone: 800-432-4566 ext. 242 Cell Phone: 954-444-0904 Email: mmacek@uswarranty.com

Randall Rabbitt

Executive Vice President, National Sales Director

Office Phone: 800-432-4566 ext. 231 Cell Phone: 954-444-0905 Email: rrabbitt@uswarranty.com

Jim Smolich

Chief Financial Officer

Office Phone: 800-432-4566 ext. 246 Cell Phone: 954-605-1799 Email: jsmolich@uswarranty.com