On March 3, 2003, the U.S. Department of Labor ("DOL") published a notice of proposed exemption to Archer Daniels Midland Company ("ADM") which, when finalized, would sanction ADM's use of a captive insurer to reinsure certain of ADM's benefit plans (the "ADM Exemption"). The significance of the ADM Exemption is that it will be the DOL's second exemption of this type and is expected to pave the way for greatly simplified future approvals of these arrangements by the DOL.

In its application, ADM has proposed using its captive insurer to reinsure certain insured life insurance and other benefits offered generally to employees of ADM. Among other commitments made to the DOL in connection with the exemption request, ADM has promised that there will be an immediate and objectively determined benefit to plan participants in the form of increased benefits, that the relevant plans will contract only with insurers with ratings of A or better and that an independent fiduciary will be retained who will render an opinion that all underlying requirements have been satisfied.

While in recent years there has been growing interest in the concept of funding employee benefits through the use of a captive insurer, the possibility of running afoul of the "prohibited transaction" prohibitions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") has been a significant impediment to the proliferation of these arrangements.

On October 11, 2000, the DOL granted the first exemption in this area to Columbia Energy Group. The granting of this exemption confirmed the viability of the use of a captive insurer to reinsure employee benefits. However, because an exemption can only be relied on by the entity to whom it was issued, other companies interested in establishing these arrangements must apply for their own exemptions from the DOL, a process which can take many months and entail not insignificant costs.

Since 1996, the DOL has had in place a procedure for expedited processing of prohibited transaction exemption requests. Under this procedure (set forth in Prohibited Transaction Exemption 96-62), commonly known as "EXPRO," if an applicant seeks an exemption which is substantially similar to either (a) two other individual exemptions granted within the preceding five-year period or (b) (i) one individual exemption granted within the preceding ten-year period and (ii) one transaction which received authorization under EXPRO within the preceding five-year period, the application can be submitted through a streamlined review process which generally results in the exemption being granted within about three months.

It is our expectation that the DOL will treat the ADM Exemption, when finalized (presumably in late April or early May), as being "substantially similar" to the Columbia Energy Exemption. Accordingly, by early summer, companies with an interest in using their existing captive insurers (or establishing captive insurers) to reinsure portions of their employee benefit programs, should be able to submit exemption applications using the EXPRO process, which will enable them to secure DOL approval and implement the desired arrangements in a far more timely manner than previously available. It is widely presumed that the availability of this expedited approval procedure will result in a number of companies that may have been waiting for the second exemption to be issued, to move rapidly to submit their own applications and move forward with the establishment of these programs.