Employee Benefits – The Real Deal

1. Employee Benefits – The Real Deal September 19, 2006

2. Employee Benefits – The Real Deal Moderator:Brady Young, President & CEO, Strategic Risk Solutions Panelist:Jim Long, Worldwide Director of Global Benifits, AIG Global Benefits Timothy R. Bucci, Director, Risk Management & Corporate Insurance, NiSource Inc.

3. Employee Benefits – The Real Deal Jim Long Worldwide Director - AIG Global Benefits

4. Intl Employee Benefits to captives: estimated 36 accounts, $250 million in premium • Growing interest in U.S. and LTOs • Compliance/Power/Control device • Implementation “tricks of the trade” via DHL case study

5. COMBINED GLOBAL PLATFORM • Premium Retrocession/Risk Transfer • + 50 k in premium • Annual premium paid in advance, • sent to captive within 10 days • Renewal terms by Nov./Invoices • out by Dec./Payment by Jan. • Net cash flow to captive • Can now include US • Quarterly bordereaux • “Loss Free Pool” • Countries with less than 50 K • Premium payment flexible • For “Blocked Currency”, or smaller • countries or US if desired Annual Settlement Release of Reserves Reinsurance Protection Excess Life $50-750K-based upon country specific riskAggregate Stop Loss 125%-150% of premiumCatastrophic Aggregate protection against multiple loss Upfront Premium Reduction Security Measures: LOC or Trust Agreement

6. Current State / Future State • Traditional Employee Benefits within P&C Captive • Organizational change: Better coordination within HQ • LTOs: Retiree medical, frozen DB plans • More scrutiny and regulation • Fronting and risk transfer issues

7. Key Countries *Source: Mercer 2002 Pooling Review

8. Five Good Reasons to Use a Captive For Employee Benefits . . . • Provides Single Funding Mechanism for consolidating Global Programs and maximized cost savings. • Adds “Unrelated” or third-party risk, which can be used to exceed 30% threshold for achieving US tax deductibility for all Captive premium and reserves. • Provides better control for corporate HQ through improved financial reporting. Compliments new Corporate Governance efforts. • Enables Captive to exert greater control over local insurers and set more flexible terms based upon its own risk tolerance limits. • Provides portfolio diversification and more predictable risk to Captive.

9. The degree of difficulty to achieve the desired level of control and savings ( Source: Towers Perrin ) High DB Plans Retiree Medical Nonqualified Benefits Degree of Difficulty Global Pooling Long Term Disability Group Term Life and Supplemental Life Medical Stop Loss Low Low High Relative Cost Savings

10. DHL Case Study • Background • Corporate Objectives • Programs as of Today • Key Notes

11. Background • 500,000 Employees worldwide (1,280 locations) • Operating in 226 countries • Decentralized – Strong local/regional authority • Weak international HR coordination at the beginning • At the start, 11 countries pooled with about $4.7M in premium • Total estimated market spend on employee benefits: • Current – in excess of $80M

12. Corporate Objectives • Cost control • Central reporting – trend identification • Platform for Global Risk Management • Protection against catastrophic events

13. Program as of Today • 84 countries in program • Average discount of 23.50% over prior premium • Number of employees cover is in excess of 55,000 • Captive premium as of 2006 is in excess of $60M • Captive year ends surplus: 8 out of last 10 years • Quarterly bordereux/web-enabled

14. Key Notes Success of the Captive program depends on the following functions: • Annual premium statement to be insured by Dec 1, premium to be collected by Dec 31, and funds to be sent to Wilmington by Jan 10 • Death Claims to be notified to pooling NY immediately, and medical claims paid amounts to be notified by the 5th day of each calendar quarter for the claims paid for prior quarter • Annual renewal feedback by 1st week of October, always communicate and local issues, request for benefit changes and ex-gratia claims

15. NiSource Long-Term Disability Program Tim Bucci NiSource Inc.

16. Program History • NiSource Insurance Corporation, Ltd. (“NICL”) began reinsuring Long-Term Disability Risk (“LTD”) in 1999. • Since that time NICL's risk partners included: • Wausau 1999 • Liberty Mutual – 2000, 2001 • Unum Provident – 2002, 2003 • Prudential – 2004 - current

17. 1/1/99 through 7/1/01 • Wausau/Liberty Mutual fronting for the program and ceding 100% of the risk to NICL • Liberty Mutual/Wausau would not provide aggregate stop protection and there were no viable alternatives in the domestic life and health reinsurance market • NiSource retained a “risk gap” and McGriff placed aggregate stop reinsurance in the London Market

18. NiSource Insurance Corporation, Ltd. Aggregate NiSource Bond London Based Reinsurance AEGIS 1/1/99 through 7/1/01 Structure

19. 7/1/01-1/1/04 • Program placed with UnumProvident • NICL accepts the first 65% of expected loss and 25% in a risk corridor between 65% and 130% • UnumProvident accepts all risk excess of 130% • UnumProvident program was on a funds withheld basis whereby Unum holds assets and guarantees NICL a return of five year treasury plus 100 basis points – NICL asset manager believe return acceptable

20. NiSource Insurance Corporation, Ltd. 65% of Expected Unum 75% Unum 100% of Losses Excess of 130% of Expected NICL 25% 65% 130% 7/1/01-1/1/04 Structure

21. 1/1/04-05 • Prudential becomes the new risk partner in year six of the program • The change to Prudential was precipitated by Unum’s downgrade to B++ and the ability to improve the program’s overall structure and risk profile • The new structure is quota share with an aggregate stop and the captive holding all of its program assets to increase investment yield

22. Prudential 50% Quota Share to 125% of Expected Loss Prudential 100% of Losses Excess of 125% of Expected NICL 50% Quota Share to 125% of Expected Loss 1/1/04-05 – Current Structure

23. Historical LTD Premium RateWith Linear Trend line

24. Areas for Benefit Expansion • Life Insurance • Initial analysis completed by SRS suggesting viability • Milliman hired to deliver formal pricing analysis • Contacted Dermott, Will & Emery (Chicago) to provide input on timeline an cost of EXPRO approval. • Ready to move towards implementation subject to final internal approvals

25. Recent Benefits in Captives Activity

26. Keys to success • Strong partners and service providers - Carriers - Broker – McGriff - Captive Consultant/Manager - SRS • Internal cooperation and communication • Claims and data management • Regulators – Vermont and DOL