BICEP BIG INDEPENDENT CITIES EXCESS POOL 3-2006

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Exhibit B BICEP Liability Program Target Retained Earnings Policy Statement 1. PURPOSE. The purpose of this policy statement is to give guidance to the Board making annual funding decisions for the Liability Program. By adoption of this poll statement, the Board of Directors acknowledges that the long-term financial strenc of the Liability Program is of utmost importance. There is a high degree uncertainty in actuarial estimates due to the possibility of occasional catastropi claims and inconsistent or inaccurate case reserving; therefore, the Board Directors desires to fund the Program in a cautious and prudent manner and retu dividends to its members in an equally cautious and prudent manner. 2. TARGET RETAINED EARNINGS. BICEP has determined that the target retains earnings goal for the Liability Program is the actuarially determined 85% confiden~ level discounted for investment income, subject to the following ratios: Participation Premium to Retained Earnings ratio: Target = 1.5:1 This ratio is a measure of how Retained Earnings is leveraged again possible pricing inaccuracies. A low ratio is desirable. BICEP Retention to Retained Earnings ratio: Target = 0.5:1 This ratio is a measure of the maximum amount that Retained Earn could decline due to a single loss. A low ratio is desirable. Outstanding Reserves to Retained Earnings ratio: Target = 1.5:1 This ratio is a measure of how Retained Earnings is leveraged possible reserve inaccuracies. A low ratio is desirable. • Retained Earnings is the amount shown as Retained Earnings in BICEP's most recent financial audit. • Participation Premium includes the Risk Sharing Premium and reinsurance/excess insurance premium but does not include administrative costs. • BICEP Retention is the maximum amount of exposure to a single loss retained by BICEP over the most recent 10 years. Liability Program 01-21-06 -B'i'