Securing Business Through Captive Insurance Companies

1. Securing Business Through Captive Insurance Companies Presented March 19, 2003

2. Indeed Interesting Times for Our Industry: • DOL - Is it for real • AHP legislation - fact or fiction • Convergence of corporate America’s H.R. and Risk Management Departments - Now wouldn’t that be something!! 2

3. New Business Opportunities For: • TPAs • MGUs • Excess Insurers 3

4. Dick’s Rules of Order • Order is overrated as a learning experience • Stand up and proclaim: • Questions • Clarifications • Disagreements 4

5. Captives 101 • Control coverage design and management • Share in underwriting and investment income • Big payday when you sell or take on partners 5

6. “Your Name Here” • Note: The point isn’t that people forming captives are going to be taking all the profits from traditional insurance companies – just a good share! 6

7. What is a captive • Captives are truly "Special Purpose Insurance Companies." They are created primarily to serve a single corporation (or corporate family), members of an association or the clients of a TPA, MGU and/or Excess Insurer. The captive's owner(s) control and direct its operations. 7

8. Captive Domiciles • Seventeen states, the District of Columbia and the U.S. Virgin Islands have enacted laws that regulate these Special Purpose Insurance Companies differently than traditional commercial insurers. 8

9. What is a protected cell • The term "protected cell" applies to separate insureds' risks that are segregated (protected) from other insureds' risk exposures and liabilities. • Protected cell design structures are flexible in make-up. 9

10. Traditional Captive 10

11. Sponsored Captive 11

12. CAT Cover Aggregate Loss Cover Specific Loss Cover 12

13. Virtual Captive Insured Reinsurer 1 Insurance Company Policy Policy Experience Account Losses LOC Reinsurer 2 13

14. Virtual Captive • Insurance Company issues Policy subject to a deductible or SIR. • Reinsurer 1 issues Indemnification Policy to Insured. • Reinsurer 1 reinsures to Reinsurer 2. • Reinsurer 2 posts LOC to Insurance Company to fulfill collateral obligations. • Insured indemnified for losses in deductible/SIR layer. • Upon commutation, experience account is returned to Insured. • Upon novation, experience account is novated to newly formed Captive. 14

15. TPA Captive Strategy • Client marketing and retention • Control coverage design and management • Money 15

16. MGU Captive Strategy • Attract new TPA/Insured business • Allow TPAs/Insureds to participate in risk/rewards • Underwriting partnership opportunities with markets 16

17. Excess Insurer Captive Strategy • Write and retain good business • Glue for long term partnerships with TPAs, MGUs and Insureds • Creative funding alternatives for CAT losses and long tail claims 17

18. Captive Formation Steps • Identify the Three The’s • Why • How • Return • Identify the Team: • Leader • Actuary • Lawyer • Accountant Note: Actuaries, attorneys and accountants are also integral to formation 18

19. Hire Me! • Richard C. Goff • RCGoff@mimsintl.com • 800-899-1399 • www.mimsintl.com • www.taftcos.com (captive management services) 19