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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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Presentation Transcript

Introduction
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
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”



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”.

OR

“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.”









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.



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


c.

  • > 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

    EmployeesHeadcount

    U.S. 7,100

    International 8,500

    Total Employees 15,600



    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
    CaptiveStructures“DirectIssueCaptive”

    ALCON

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

    Alcon pays premium

    To TRICL

    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
    CaptiveStructures“ReinsurancetoCaptive"

    ALCON

    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.

    TRICL


    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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