Operating Your Captive as a Business

1. Operating Your Captive as a Business Answering the Question “What have you done for us lately?”

2. Dennis P. HarwickPresident, Captive Insurance Companies Association (CICA) • Anne Marie Towle, CPA • Senior Captive Consultant, Willis Global Captive Practice • Daniel Kugler • Assistant Treasurer, Risk Management, Snap-On Incorporated • Ryan Ralston • Senior Consultant, Spring Consulting Group, LLC

3. Agenda • History & Current Landscape of Captives • Captive Utilization • Captive Revenue Generator & Value Delivered • Case Study: Snap-on • Innovative Uses • Questions

4. History & Current Landscape of Captives

5. Captives: A Brief History • History vs. Current Landscape • Learning Objectives: • Innovative uses of insurance captives, • Identifying areas for third party/affiliated party coverages, • Demonstrating sustainable value to the parent • Finding opportunities to allocate captive revenues toward risk management and education.

6. Number of Captive Licenses • More than 6,000 spread throughout 60+ domiciles globally • Over 80% domiciled in the United States and the Caribbean Islands

7. Onshore Emergence - 2014 • Over 30+ States

8. Captive Utilization

9. Types of Captive Utilization • Retained Risk Finance • Risk Transfer Rate Arbitrage • Access to Capacity • Entrepreneurial Utilizations • Infrastructure for providing transparency, validation, and rationalization of retained risk positions • Enhancing risk management efforts • Accelerating tax treatment of deductible liabilities • Reinsurance market cost of risk transfer is less than commercial retail cost of risk transfer • Better use of capital to retain risk than transfer it • Managing total cost of risk • Federal programs (TRIA) • Reinsurance capacity, which may not be otherwise accessible in commercial retail market (trade credit risk, +10 yr. pollutions risks) • Franchisee programs • Consumer facing insurance programs (warranty, service contract, point of sale insurances, etc.) • Affiliate business (vendors, VAPs, distributors, etc.) • Agency captives • 3rd party business

10. Entrepreneurial Utilizations • Entrepreneurial • Package, Workers’ Compensation, Auto Liability, Personal Insurances to Franchisees • Warranty / Service contract programs to consumers • Forced placed insurance programs to credit customers • Credit Life Insurance to finance consumers • Title and Private Mortgage Insurance Participating in the profitability of insurance programs offered to 3rd parties • Opportunity to build new profit centers; • Opportunities to access further monetization of commercial relationships; • Examples include: • Franchisee insurance programs • Consumer facing insurance programs sold in tandem with core products at point of sale • Forced insurance products required of those in credit relationships. • Key Characteristics: profitable business, mutually enhances commercial relationship, portfolio size exceeds $3-5m

11. Captive Revenue Generator & Value Delivered

12. Analysis required for revenue generation

13. Captive Revenue Generation • Third Party Business Aligned to Enterprise Risk Management • Capture funding for exposures which vendors and third parties bring to YOUR ORGANIZATION • Ensure coverage protection for risks which are outside of YOURdirect control • Third Party Business in the Pursuit of New Revenue Streams • Provide risk and non-risk bearing revenue streams to YOUR ORGANIZATION • Improve engagement with and relevance to customer base • Deeper penetration into customer's wallets via INSURANCES

14. Value Delivered Will the proposed plan achieve the following identified benefits?

15. Case Study: • Snap-on

17. “Five • Do the • Work • of • Fifty” • Founded on innovation in 1920 • Unique brand strength • 11,300 associates worldwide • 2013 net sales: $3.1 billion • NYSE: SNA / S&P 500 • $6.3B Market Cap • 1.6% Cash Dividend Yield • Dividends paid without interruption or reduction since 1939

19. Snap-on Tradition • Selling Tools through Vans to Vehicle Technicians

20. Enhance the Franchise Network-Reach More Technicians • Maintain strong franchisee health metrics • Enhance coverage by filling routes more quickly • Increase franchisee productivity • Leverage unique van model (service, product and credit)

21. Risk Management Department • The Snap-on Risk Management team is comprised of 9 professionals with three core functions: To Partner, To Protect and To Prosper. • To Protect • We identify and mitigate first- and third-party exposures, execute contractual risk transfer, and purchase insurance policies where compulsory and/or cost effective. • To Partner • We support our internal and external customers: Associates, Franchisees, Consumers, Shareholders • To Prosper • The programs we establish support our corporate vision and reflect our corporate values.

22. SecureCorp Companies were established to: Provide Insurance and Benefits programs to the franchisee • To meet the franchise agreement insurance requirements • Truck, General Liability, and Inventory • To enhance the franchise offering • Cost, Coverage and Convenience of the programs delivered- 3c’s • Provide a single source for insurance and benefits tailored to the franchisee business • Fully-Licensed to comply with insurance regulations to deliver the programs directly to the franchisee

23. SecureCorp Companies were established to: • Provide programs to Snap-on Incorporated • Reinsures SOI self insured reserves Workers Comp and Product Liability • Agency of record for contract bonds eliminating outside commissions • Licensed adjusting company for Corporate claims • Resource for SOC and SOT verifying compliance and ensuring protection

24. Optional Programs: • Life Insurance (Term Life Policy) • Short Term Disability (Business Expenses) • Major Medical Programs • Retirement Plans (SEP) • Personal Lines (Home, Auto, & Boat) • Workers’ Compensation • Umbrella Liability

25. Our Goal: • “…to provide assistance in protecting your business, so you can focus on growing your business.”

26. Captive Definition • “A Risk Financing Entity to Assist a Corporation’s Financial, Customer and Business Goals and Objectives”

27. Snap-on • Incorporated Snap-on Tools Company, LLC. Snap-on Global Holdings Inc. Snap-on SecureCorp Insurance Company Ltd. Est. 1997 Bermuda SN SecureCorp Malta Limited Est. 2011 Snap-on SecureCorp Inc. Est. 1996 Wisconsin SN SecureCorp Sales Ltd. Est. 2004 UK

28. Snap-on SecureCorp, Inc. • Est. 11/1996 • Domicile: Wisconsin • Insurance Agency • Agent – US Franchisee Programs • Licensed claim administrator US • Franchisee • SN SecureCorp Sales Ltd. • Est. 11/2004 • Domicile: UK • Insurance Agency • UK Franchisee Auto, General • Liability, Inventory Coverage • Licensed Claim administrator • Snap-on SecureCorp Insurance Company Ltd. • Est. 9/1997 • Domicile: Bermuda • Reinsurance Company • US/Canada/Australia Franchisee Inventory Coverage (FIC) • Franchisee General Liability & Truck Programs • Snap-on Incorporated Self-Insured Retention • Worker’s Compensation • General Liability/Product Liability • SN SecureCorp Malta Limited • Est. 6/2011 • Domicile: Malta • Insurance Company (Issuing FIC Policy) • EU Franchisee Inventory Coverage

29. Innovative Uses

30. Innovative Uses of Captives • The Biggest risk is not taking any risk… • In a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks. • Mark Zuckerberg, CEO, Facebook

31. Taking Risks – Which Ones? • Target = Efficiencies Target = Top Line Revenue • High • Weather Hedge • Factoring Receivables • Residual Value Insurance • Trade Disruption • Extended Warranty • Revenue • Stream • Correlation • Property • Employee Benefits • General Liability • Product User Groups • Key Person Life • Cyber Attack • Low • Reinsurance Pools • Target = Captive • Revenue • 1st Party • 3rd Party • Risk Classification

32. Top Line RevenueHelp “Sell” your Products/Services • Weather Hedge (snowfall) • Residual Value Insurance (aircraft) • Extended Warranty / Service Contracts (durable goods) • Performance Guarantee (roads) • Revenue Insurance for Product User (crop) • Product Liability Insurance (high risk products)

33. Manage Customer’s or User’s Risk • Increase Protection Available (converter box) • Group Employee Benefits Pools (medical; hospital) • Commodity Price Risk (corn) • Loss & Damage / Shipping Insurance • Manage risk positions within the captive

34. Help Users Enjoy Your Products • Adventure Clubs Liability Insurance (equipment MFG) • Sponsored Group Programs (non-profit) • Additional Benefits to Users: • Share best use and safety practices • Align incentives for safe operations • Return portion of profits • Have fun

35. Managing Internal Risk “Perceptions” • Specific Product Liability Deductive Buy-down • (risk adverse sales force) • Manage Global Deductibles • (charge for deductible limits) • International Benefits Programs • Manage your own risk in the captive for a Profit

36. Holistic Insurance Risk Financing Improving Captive Performance • Property & Casualty • Casualty • Property • Cyber Risk • Trade Credit • Employee Benefits • Medical & Dental Stop Loss • Retiree Medical • Multinational Pooling • Employee Volunteer Life Insurance • Reduced claims volatility • Increased cash flow • Potential tax efficiency • Integrated disability payment

37. Your Captive as a Business • To eliminate risk is to eliminate profit • A better managed risk is a competitive advantage

38. Questions & Final Comments

39. KEEP THIS SLIDE FOR EVALUATION INFORMATION/MOBILE APP ETC. • Anne Marie Towle • Willis Global Captive Practice • anne.marie.towle@willis.com • 317-696-3881 • Dennis Harwick • Captive Insurance Companies Association • dharwick@CICAworld.com • 954-960-2627 • Ryan Ralston • Spring Consulting Group LLC • ryan.ralston@springgroup.com • 316-708-5010 Please complete the session survey on the RIMS14 mobile application.