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Taking Control with a Captive. Introduction. Speakers: Scott Gemmell, Senior Vice President, Marsh Jon Schmieden, Director, Global Insurance & Risk Management, Alcon Laboratories Moderator: Roger Gillett, Member of the Bermuda Insurance Advisory Committee. Gaining Control of Insurance Spend.

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Taking Control with a Captive

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Taking control with a captive

Taking Control with a Captive




  • Scott Gemmell, Senior Vice President, Marsh

  • Jon Schmieden, Director, Global Insurance & Risk Management, Alcon Laboratories


  • Roger Gillett, Member of the Bermuda Insurance Advisory Committee

Gaining control of insurance spend

Gaining Control of Insurance Spend

  • Retain the premium for expected losses

  • Capture profits that would otherwise be earned by insurers

  • Reduce reliance on commercial insurers and avoid market fluctuations

  • Create flexibility and provide cover for “uninsurable risks”

Risk retention decision

Risk Retention Decision

Three key issues

Three Key Issues

  • Understand the capacity and appetite to assume more risk

  • Determine future expected losses

  • Gauge market response

Risk tolerance appetite

Risk Tolerance & Appetite

Risk Tolerance is…

“the financial ability to pay for own losses from cash flow, provisions and other available liquid funds as a result of risk related events”.


“an acceptable amount of financial impairment that can be retained without a material impact on the business”.

Risk Appetite is…

“how much risk an organization is willing to retain.”

Loss analysis

Loss Analysis

Loss analysis1

Loss Analysis

Determine future expected losses

Determine Future Expected Losses


Loss forecasting

Loss Forecasting

Gauge the market response

Gauge the Market Response

Total cost of risk

Total Cost of Risk

Future market conditions

Future Market Conditions


Take control

Take Control….

Captive Year 1 Captive Year 2 Captive Year 3 Etc……..

Theory meets reality

Theory meets Reality

Jon Schmieden

Director, Risk & Insurance

Alcon Laboratories, Inc.

Alcon inc the largest eye care company in the world

Alcon, Inc. the Largest Eye Care Company in the World!!!

Taking control with a captive

Robert Alexander1912-1985

William Conner1907-1992

  • Founded in 1947, Fort Worth, Texas

  • Founders: Alexander and Conner

  • Unmet needs of ophthalmologists

  • Small NYSE company in 1971

  • Nestlé 1977

  • IPO 2002 / Nestlé

  • Novartis 2010

Taking control with a captive


  • > 70 Affiliates (Legal Alcon Entities)

  • 5 Research Centers

  • 16 Manufacturing facilities

Alcon s product spectrum

Alcon’s Product Spectrum

  • Pharmaceutical

    • Ophthalmic

    • Otic & Nasal

  • Consumer Products

    • Vision Care, Optifree

    • Vitamins

  • Surgical

    • Therapeutics

    • IOLs

    • Instruments

    • Refractive/Laser

  • Alcon inc group profile

    Alcon, Inc. Group Profile

    Major DivisionsSales $US Millions

    Pharmaceuticals $2,677

    Consumer Products 825

    Surgical Products 2,997

    Total $6,499




    Total Employees 15,600

    Ownership org chart

    Ownership Org. Chart

    Trinity river insurance co ltd tricl

    Trinity River Insurance Co. Ltd. (TRICL)

    • Bermuda domicile, since 1999

    • Over $650 million in assets

    • Surplus over $250 million

    • Annual Premiums over $40 million

    • All lines of P&C direct or reinsured (international and US risks)

    • All Lines of L&H internationally reinsured and reinsures US risks

    Tricl usa inc

    TRICL (USA), Inc.

    • Vermont domicile, since Jan. 2003

    • Over $47 million in assets

    • Annual Premiums over $30 million

    • All lines of P&C direct or reinsured

    • Reinsure US employee benefits risks

    • Reinsure Int’l employee benefits risks

    Captive structures direct issue captive



    TRICL issues policies and arranges claims handling service and retains risk at agreed level.

    Alcon pays premium

    To TRICL


    Direct issue captive insurance programs

    “Direct Issue Captive”Insurance Programs

    • Global Excess Product Liability (including extended discovery)

    • Global Property and Business Interruption (including earthquake)

    • Crime Insurance

    • Fiduciary Liability

    • US Trade Credit

    • Product Recall

    • Employment Practices

    • U.S. Medical Stop-Loss

    • US Workers Compensation Deductible Buyback

    • Punitive

    Captive structures reinsurance to captive



    Fronting insurer issues policies, arranges claims handling service and pays claims.

    Alcon pays premium to “Front”

    Admitted Fronting Insurer

    AIG, Generali or Aetna

    Reinsurance cessions to TRICL.

    TRICL retains risk at agreed level and pays claims within retention.


    Reinsurance to captive premiums invoiced locally

    “Reinsurance to Captive” Premiums Invoiced Locally

    • Global Primary Auto Liability

    • Global General Liability (including Products)

    • Global Clinical Trials Liability

    • Global Transit Insurance

    • Japan Trade Credit

    • International Medical, LTD and Life Insurance

    • US Life and LTD

    Dol exemption timeline

    DOL Exemption Timeline

    • March – April 2004

      • Retain Consultant/fiduciary

      • Compile/organize data for DOL submission

    • May 2004

      • Request/obtain Vermont approval for benefits insurance

      • Submission of PTE application to DOL

      • Submission of supporting data to fiduciary

    • July 2004

      • Initial approval from DOL

      • Employee comment/review period

    • August 2004

      • Final PTE Approval

    Dol exemption requirements

    DOL Exemption Requirements

    • Captive in the United States or U.S. Territory

    • Captive has at least 1 year audited operations

    • Fronting Insurer (A Rating)

    • Independent Fiduciary

    • Utilize Indemnity Reinsurance only

    • Market rates/premiums

    • Enhanced Benefits to Participants/Beneficiaries

    • No commissions

    Information needed

    Information Needed

    • Captive audited financial statements

    • Captive Pro Forma’s/Business Plan

    • Captive Certificate of Incorporation & Articles of Incorporation

    • Copies of reinsurance agreements

    • Copies of current insurance policies

    • Claims / Loss history (3yrs)

    • Copies of SPD’s

    • Copies of recent competitive bids (3yrs rate history)

    Captive advantages

    Captive Advantages

    Reduced premium expenses for operating entities

    Reduced the group tax expense

    Supported business (certificates, M&A, etc.)

    Financed loss prevention

    Improved risk profiles through risk engineering and BCP

    Centralize data and consolidate risks globally

    Reduced administration and risk management expenses

    Driven down Total Cost of Risk

    Strengthened risk management organisation in terms of structure, processes and compliance


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