New Jersey Automobile Insurance Risk Exchange

P.O. Box 66065, Lawrenceville, New Jersey 08648

(609) 890-3406

September 21, 2005

NJAIRE ANNUAL CASH SETTLEMENT

I have enclosed your company's Statewide NJAIRE Annual Cash Settlement Reports evaluated as of First Quarter 2005.

· The first report is the Annual Cash Settlement Report for Form #2. This report summarizes your company's territorial reimbursement information for calendar/accident year 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 7/1/1999 and subsequent), and 2001 through 2004. This report also includes the administrative expense assessment for 2006 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 2004 monthly payments and quarterly disbursements, and re-evaluates the distribution of investment income for 1995-2004.

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. To reduce administrative costs, NJAIRE may choose not to issue checks for amounts below one hundred dollars until all outstanding payments have been collected.

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 year 1995 is being re-evaluated.

For Form #3, calendar/accident years 1996-2000 are being re-evaluated using claim data.

For Form #4, calendar/accident year 2002 is being evaluated for the first time using claim information, calendar/accident year 2003 is being re-evaluated using exposure information and calendar/ accident year 2004 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 September 6, 2005 are included.

Assessment data

Calendar/Accident Year	Form	Assessment base	Account Quarters
1995	#2	Earned Exposures	1Q95-4Q95
1996	#3	Paid BI Claims against the Zero Dollar Threshold	1Q96-1Q05
1997	#3	Paid BI Claims against the Zero Dollar Threshold	1Q97-1Q05
1998	#3	Paid BI Claims against the Zero Dollar Threshold	1Q98-1Q05
1999 & 2000	#3	Paid BI Claims against the Zero Dollar Threshold	1Q99-1Q05
1999 & 2000	#4	Paid BI Claims against the Zero Dollar Threshold	3Q99-1Q05
2001	#4	Paid BI Claims against the Zero Dollar Threshold	1Q01-1Q05
2002	#4	Paid BI Claims against the Zero Dollar Threshold	1Q02-1Q05
2003	#4	Zero Dollar Threshold Earned Exposures	1Q03-4Q03
2004	#4	Zero Dollar Threshold Earned Exposures	1Q04-4Q04

Assessment Allocation (Reimbursement) data

Calendar/Accident Year	Form	Reimbursement base	Account Quarters
1995	#2	Paid BI claimants	1Q95-1Q05
1996	#3	Paid BI Claims against the Verbal Threshold	1Q96-1Q05
1997	#3	Paid BI Claims against the Verbal Threshold	1Q97-1Q05
1998	#3	Paid BI Claims against the Verbal Threshold	1Q98-1Q05
1999 & 2000	#3	Paid BI Claims against the Verbal Threshold	1Q99-1Q05
1999 & 2000	#4	Paid BI Claims against the Verbal Threshold	3Q99-1Q05
2001	#4	Paid BI Claims against the Verbal Threshold	1Q01-1Q05
2002	#4	Paid BI Claims against the Verbal Threshold	1Q02-1Q05
2003	#4	Verbal Threshold Earned Exposures	1Q03-4Q03
2004	#4	Verbal Threshold Earned Exposures	1Q04-4Q04

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, 1999, 2000 and 2001

Once again, accident years 1996, 1997, 1998, 1999, and 2000 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 on statewide assessments of $77,000,000 for accident year 1996, $69,700,000 for accident year 1997, $68,500,000 for accident year 1998, $46,000,000 for accident year 1999, $64,500,000 for accident year 2000 and$52,000,000 for accident year 2001 . Please note that once again accident year 1999 is the combined Form #3 data for accident years 1999 and 2000, and accident year 2000 is the combined Form #4 data for accident years 1999 and 2000.

Accident Year 2002

Please note that beginning with this evaluation, the evaluation basis for accident year 2002 will be claims. More information regarding the transition of exposure to claim evaluation is available in the NJAIRE Procedures Manual.

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 2002 was determined based on a statewide assessment of $51,000,000.

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.

Accident years 1995 and 2003 - 2004

Territory assessments at present rate are calculated by multiplying the indicated territory base rates by the number of zero dollar tort threshold earned 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	Assessment Percentage
1995	Form #2	PAIP	30.5%
2003	Form #4	PAIP	17%
2004	Form #4	PAIP	17%

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.

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 Years 2000, 2001 and 2002)

The following procedure is accident year:

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 2003 and 2004)

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 2004 monthly payments and the amounts paid to your company in the 2004 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 – 2002, and the Industrywide Total Assessments and Earned Verbal Threshold Exposures for accident years 2003 and 2004. 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.

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 2006 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 2004 monthly payments and the 2004 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 2004 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 2004. It also re-evaluates and redistributes the 1995-2003 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 1995-2004 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

You may also wire payments. The instructions for wires are as follows:

Receiving Bank: North Fork Bank

Bank ABA: 021407912

Client Account: New Jersey Automobile Insurance Risk Exchange

Account Number: 4314006034

Payment should be made within 20 days of receipt of this letter. Please note that late payments will be subject to the Incentive Assessment Program as outlined in Chapter 6 of the NJAIRE Procedures Manual.

Financial Information

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

For year 1995:

The Statewide Reimbursement Reports contain by company and by accident year, the following: statewide BI paid claimants, statewide claimant percentages, statewide earned 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 1996-2004:

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.

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

Or

Kimberly Savino

Insurance Services Office, Inc.

(201) 469-2317

ksavino@iso.com

Sincerely,

Fred Lloyd

Assistant Vice President

Insurance Services Office, Inc.

NJAIRE Central Processor

cc: Mr. William Clarke, NJAIRE

Explanation of Calculations - Section 1

Annual Cash Settlement Reports

Form #2

Columns (1) and (2) are provided for information only. These are your company’s (statewide) total reported BI Paid Claimants by accident year and Earned Exposures by calendar year.

Column (3) is your company's total calculated assessment for all territories combined by calendar year.

Column (4) is your company's total calculated reimbursement for all territories combined by accident year.

Column (5) is the net amount of all previous annual calculated reimbursements and assessments by calendar/accident year. If an amount is positive, it was paid to NJAIRE. If an amount is negative, it was paid to your company by NJAIRE.

Columns (6) and (7) are the calculated assessment (Column (3)) minus the calculated reimbursement (Column (4)) minus the previous financial action (Column (5)). If the resulting amount is positive, it is placed in Column (6), the Amount Due From Company. If the amount is negative, its absolute value is placed in Column (7), the Amount Owed to Company.

Columns (8) and (9) are the amounts in Columns (6) and (7) respectively, multiplied by an interest factor. They account for the time value of these funds.

The TOTAL CALCULATED ANNUAL CASH SETTLEMENT is the sum of Columns (6) and (8) minus the sum of columns (7) and (9).

Explanation of Calculations - Section 1

Annual Cash Settlement Report

Form #3

Columns (1) and (2) are provided for information only. These are your company’s statewide total reported BI Paid Claimants against policies in which the insured chose the Zero Dollar Threshold (Column 1) and which the insured chose the Verbal Threshold (Column 2).

Columns (3) and (4) are provided for information only. These are your company’s statewide

total reported Earned Zero Dollar Tort Threshold Exposures (Column 3)

and your company’s statewide total reported Earned Verbal Tort

Threshold Exposures (Column 4).

Column (5) is your company's total calculated assessment for all territories combined.

Column (6) is your company's total calculated reimbursement for all territories.

Column (7) is the net amount of all previous annual calculated reimbursements and assessments. If an amount is positive, it was paid to NJAIRE. If an amount is negative, it was paid to your company by NJAIRE.

Columns (8) and (9) are the calculated assessment (Column (5)) minus the calculated reimbursement (Column (6)) minus the previous financial action (Column (7)). If the resulting amount is positive, it is placed in Column (8), the Amount Due From Company. If the amount is negative, its absolute value is placed in Column (9), the Amount Owed to Company.