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New Jersey Automobile Insurance Risk Exchange

Post office Box 66065, Lawrenceville, New Jersey 08648

(609) 890-3406

September 17, 2003

NJAIRE ANNUAL CASH SETTLEMENT

I have enclosed your company's Statewide NJAIRE Annual Cash Settlement Reports evaluated as of First Quarter 2003.

· The first report is the Annual Cash Settlement Report for Form #2. This report summarizes your company's territorial reimbursement information for calendar/accident years 1992 through 1995.

· The next report is the Annual Cash Settlement Report for Form #3. This report summarizes your company's territorial reimbursement information for calendar/accident years 1996-1998 and 1999-2000 (policies in force prior to 7/1/1999). Please note that the data for accident years 1999 and 2000 are combined and appear as accident year 1999 for Form #3.

· The third report is the Annual Cash Settlement Report for Form #4. This report summarizes your company’s territorial reimbursement information for calendar/accident years 1999-2000 (policies in force after 7/1/1999), 2001 and 2002. This report also includes the administrative expense assessment for 2004 NJAIRE expenses. Please note that the data for accident years 1999 and 2000 are combined and appear as accident year 2000 for Form #4.

· Following the three Annual Cash Settlement Reports is the Annual Cash Settlement True-up Report. The True-up Report combines the total amounts for Form #2, Form #3 and Form #4, and adjusts the total to reflect the 2002 monthly payments and quarterly disbursements, and re-evaluates the distribution of investment income for 1992-2002.

If the BALANCE on the True-up report is positive, payment is due from your company and an invoice is enclosed. Instructions for the remittance of funds are included at the end of this letter. If the BALANCE on the True-up report is negative, you should expect a check from NJAIRE in approximately 10 weeks. The amount of this check will be equal to the BALANCE on the True-up report, providing all companies with positive balances are able to make their full payment. As in prior Annual Cash Settlements, in the event that some companies are unable to make their full payment, your company's NJAIRE Annual Cash Settlement reimbursement check will be reduced by an amount proportional to the total payments outstanding. Once all the outstanding payments are settled, you will receive a check for the balance of your company's Annual Cash Settlement reimbursement.

For your information, an explanation of the amounts and calculations used in this evaluation of the Annual Cash Settlement Reports (including the Annual Cash Settlement True-up Report) follows:

Annual Cash Settlement Evaluations

The NJAIRE Plan of Operations requires that each Calendar/Accident year be evaluated in full territory detail, and that each year be re-evaluated until NJAIRE determines that it is fully developed. As a result, for Form #2, calendar/accident years 1992 through 1995 are being re-evaluated.

For Form #3, calendar/accident years 1996-1999 are being re-evaluated using claim data.

For Form #4, calendar/accident year 2000 is being evaluated for the first time using claim information, calendar/accident year 2001 is being re-evaluated using exposure information and calendar/ accident year 2002 is being evaluated for the first time, also using exposure information.

Data

The following table displays the account quarter submissions included for each calendar/accident year.

All submissions processed through August 25, 2003 are included.

Assessment data

Calendar/Accident Year	Form	Assessment base	Account Quarters
1992	#2	Earned Exposures	1Q92-4Q92
1993	#2	Earned Exposures	1Q93-4Q93
1994	#2	Earned Exposures	1Q94-4Q94
1995	#2	Earned Exposures	1Q95-4Q95
1996	#3	Paid BI Claims against the Zero Dollar Threshold	1Q96-1Q03
1997	#3	Paid BI Claims against the Zero Dollar Threshold	1Q97-1Q03
1998	#3	Paid BI Claims against the Zero Dollar Threshold	1Q98-1Q03
1999	#3	Paid BI Claims against the Zero Dollar Threshold	1Q99-1Q03
2000	#4	Paid BI Claims against the Zero Dollar Threshold	3Q99-1Q03
2001	#4	Zero Dollar Threshold Earned Exposures	1Q01-4Q01
2002	#4	Zero Dollar Threshold Earned Exposures	1Q02-4Q02

Assessment Allocation (Reimbursement) data

Calendar/Accident Year	Form	Reimbursement base	Account Quarters
1992	#2	Paid BI claimants	1Q92-1Q03
1993	#2	Paid BI claimants	1Q93-1Q03
1994	#2	Paid BI claimants	1Q94-1Q03
1995	#2	Paid BI claimants	1Q95-1Q03
1996	#3	Paid BI Claims against the Verbal Threshold	1Q96-1Q03
1997	#3	Paid BI Claims against the Verbal Threshold	1Q97-1Q03
1998	#3	Paid BI Claims against the Verbal Threshold	1Q98-1Q03
1999	#3	Paid BI Claims against the Verbal Threshold	1Q99-1Q03
2000	#4	Paid BI Claims against the Verbal Threshold	3Q99-1Q03
2001	#4	Verbal Threshold Earned Exposures	1Q01-4Q01
2002	#4	Verbal Threshold Earned Exposures	1Q02-4Q02

Annual Cash Settlement Report

Calculation of Amount Due From/Owed to Your Company is done separately for Form #2, Form #3 and Form #4.

A) Assessments

Accident Years 1996, 1997, 1998 and 1999 (Form #3)

Once again, accident years 1996, 1997, 1998 and 1999 are evaluated on a per claim basis. The territorial assessments are derived by multiplying each Paid BI Claimant against the Zero Dollar Threshold by a per claim charge. The per claim charges for this year’s settlement are attached. The charges were determined based a statewide assessments of $77,000,000 for 1996, $70,000,000 for accident years 1997 and 1998, and $48,000,000 for accident year 1999. Please note that once again accident year 1999 is the combined Form #3 data for accident years 1999 and 2000.

Accident Year 2000 (Form #4)

Please note that beginning with this evaluation, the evaluation basis for accident year 2000 will be claims. More information regarding the transition of exposure to claim evaluation is available in the NJAIRE Plan of Operations.

Each territory assessment is determined by multiplying the combined number of Paid BI Claimants against the Zero Dollar Threshold by a per claim charge. The per claim charge for this evaluation for 2000 was determined based on a statewide assessment of $65,000,000.

The resulting territory assessments are summed to determine your company’s total statewide Calculated Assessment. This number appears in the column titled Assessments at Present Rate on each of the Annual Cash Settlement Reports.

Please note that once again accident year 2000 is the combined Form #4 data for accident years 1999 and 2000.

Please remember that NJAIRE is enabled to evaluate and adjust the assessment percentages and/or per claim charge retroactively. Therefore, a different assessment percentage/claim charge may be used for each evaluation of a calendar/accident year.

Accident years 1991 – 1995 and 2001 - 2002

Territory assessments at present rate are calculated by multiplying the indicated territory base rates by the number of appropriate exposures for that accident year by the current assessment percentage for that accident year. The following table lists this information by accident year:

Accident Year

Form

Rates used

Exposure data used

Assessment Percentage

1992	Form #2	MTF	Zero Dollar Tort Threshold earned exposures	112%
1993	Form #2	PAIP	Zero Dollar Tort Threshold earned exposures	52%
1994	Form #2	PAIP	Zero Dollar Tort Threshold earned exposures	49%
1995	Form #2	PAIP	Zero Dollar Tort Threshold earned exposures	30%
2001	Form #4	PAIP	Zero Dollar Tort Threshold earned exposures	20%
2002	Form #4	PAIP	Zero Dollar Tort Threshold earned exposures	20%

B) Assessment Allocations

Form #2

The following procedure is applied by accident year:

Within each territory, your company's number of BI paid claimants is divided by the number of Industrywide BI paid claimants for that territory. The resulting claimant percentage is then multiplied by the total Industrywide Assessments for the territory, generating your company's territory Assessment Allocation.

The territory Assessment Allocation totals are summed, and the final statewide result is shown on your company's Annual Cash Settlement Reports (Column (4)).

Form #3 (Accident Years 1996 - 1999) & Form #4 (Accident Year 2000)

The following procedure is applied for Form #3, accident years 1996 – 1999 and Form #4, accident year 2000:

Within each territory, your company’s number of Paid Bodily Injury Claimants against the Verbal Threshold is divided by the number of Industrywide Paid Bodily Injury Claimants against the Verbal Threshold for that territory. The resulting claimant percentage is then multiplied by the total Industrywide Assessments for that territory, generating your company’s territory Assessment Allocation.

The territory Assessment Allocation totals are summed, and the final statewide result is shown on your company's Annual Cash Settlement Report (Column (6)).

Form #4 (Accident years 2001 and 2002)

The following procedure is applied by accident year:

Within each territory, your company’s number of Verbal Threshold Earned Exposures is divided by the number of Industrywide Verbal Threshold Earned Exposures for that territory. The resulting exposure percentage is then multiplied by the total Industrywide Assessments for that territory, generating your company’s territory Assessment Allocation.

The territory Assessment Allocation totals are summed, and the final statewide result is shown on your company's Annual Cash Settlement Report (Column (6)).

C) Previous Financial Transactions

The amounts paid by (or paid to) your company as a result of previous evaluations of the Annual Cash Settlement are reflected in the Previous Financial Transactions column of your report. The amounts paid by your company in the 2002 monthly payments and the amounts paid to your company in the 2002 provisional disbursements are reflected in the Annual Cash Settlement True-up Report.

The amount due from (or owed to) your company on the Annual Cash Settlement Report is equal to your Assessments, minus your Reimbursements, minus your Previous Financial Action.

We have attached reports displaying the Industrywide Total Assessments and BI Paid Claimants by territory by calendar/accident year for Form #2, the Industrywide Total Assessments and Paid Bodily Injury Claimants against the Verbal Threshold Exposures by territory by calendar/accident year for accident years 1996 – 2000, and the Industrywide Total Assessments and Earned Verbal Threshold Exposures for accident years 2001 and 2002. These, along with your quarterly Compiled Figures Reports and your previous Annual Cash Settlement Reports, will enable you to verify your company's Annual Cash Settlement should you wish to do so. To verify Form #2 through fourth quarter 1992, you will need to use either the revised Compiled Figures Reports (if your company resubmitted using Earned Exposures) or the Exposure Conversion Monitoring Report (enclosed). Please note that exposures were reported on an earned basis beginning with the first quarter of 1993.

The Interest Income Due from/Owed to Your Company on the Annual Cash Settlement Reports reflects the time value (interest) of the money either owed to or due from your company.

Your company's share of the total 2004 NJAIRE administrative expense is shown on the Form #4 Annual Cash Settlement report and is reflected in the total amount due from or owed to your company.

Please see Section 1 of the attached summary, "Explanation of Calculations", for a description of the figures on the Annual Cash Settlement Report.

Annual Cash Settlement True-up Report

Part A, the Annual Cash Settlement True-up, adjusts the Annual Cash Settlement amount for Form #2, Form #3 and Form #4 combined due from (or owed to) your company to reflect the 2002 monthly payments and the 2002 quarterly disbursements.

Part B, the Investment Income Redistribution, reflects the differences between the method of calculating your company's share of the investment income in the provisional quarterly reimbursements, and the method of calculating your company's trued-up share annually.

For the 2002 Quarterly Reimbursements, your company received a share of the Investment Income based on your company’s share of the industrywide Earned Verbal Threshold exposures. Now, in the Annual Cash Settlement True-up, the Investment Income is redistributed based on your company's share of the total Industrywide Reimbursement amount for accident year 2002. It also re-evaluates and redistributes the 1992-2001 investment income based on how your company's share of the total Industrywide Reimbursement amount for the accident year has changed due to the development of that accident year.

The Investment Income redistributed here is the amount earned on funds while they were held by NJAIRE awaiting disbursement.

The Total Industrywide Reimbursement amounts for accident years 1992-2002 appear on the report labeled Industrywide Total Assessments. This will enable you to verify your company's share of the Investment Income Redistribution.

Column (3) reflects the time value (interest) of the money either owed to or due from your company.

Please see Section 2 of the attached summary, "Explanation of Calculations", for a description of the figures on the Annual Cash Settlement True-up Report.

Remittance of Funds

If the total calculated Annual Cash Settlement amount is positive on the True – up Report, please send a check for this amount, payable to New Jersey Automobile Insurance Risk Exchange to:

New Jersey Automobile Insurance Risk Exchange

P.O. Box 11374

Newark, NJ 07101-4374

Payment should be made within 20 days of receipt of this letter. Please note that late payments will be subject to penalties as outlined in Chapter 10 of the NJAIRE Plan of Operations.

Financial Information

We have enclosed, for your information, the financial information for all companies participating in the Eighteenth NJAIRE Annual Cash Settlement.

For years 1992-1995:

The Statewide Reimbursement Reports contain by company and by accident year, the following: statewide BI paid claimants, statewide claimant percentages, statewide exposures, assessment allocations by territory summed to statewide totals, previous financial actions by territory summed to statewide totals, and what was owed to or due from companies by territory summed to statewide totals. Note that the report for Form #2 shows earned exposures.

For 1996-2000:

The Statewide Reimbursement Report contains by company, the following: statewide BI claims against the zero dollar tort threshold, statewide BI claims against the verbal threshold, statewide earned verbal threshold Exposures, statewide verbal threshold claimant percentages, statewide earned Zero Dollar tort threshold exposures, assessment allocations by territory summed to statewide totals, and what was owed to or due from companies by territory summed to statewide totals.

For 2001 and 2002:

The Statewide Reimbursement Report contains by company, the following: statewide BI claims against the zero dollar tort threshold, statewide BI claims against the verbal threshold, statewide earned verbal threshold Exposures, statewide verbal threshold exposure percentages, statewide earned Zero Dollar tort threshold exposures, assessment allocations by territory summed to statewide totals, and what was owed to or due from companies by territory summed to statewide totals.

We have also enclosed an exhibit displaying the member companies and their company numbers.

It is important to note that the amounts owed to or due from companies on the Reimbursement Reports are exclusive of any adjustments for interest income, investment income or administrative expense assessment. Monthly payments and quarterly disbursements are not reflected here either. The amounts owed or due in the Reimbursement Report are the amounts that appear in column (6) or column (7) on Form #2 reports and columns (8) and (9) on the Form #3 and Form #4 reports of each individual company's Statewide Annual Cash Settlement Reports.

Questions

If you have any questions concerning the calculation of your company's Annual Cash Settlement, please contact:

James Gilmartin

Insurance Services Office, Inc.

(201) 469-2327

jgilmartin@iso.com

Sincerely,

Fred Lloyd

Assistant Vice President