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Program Design Risk Financial Optimization. Program Design Risk Financial Optimization. Moderator: Tom Kelly, Partner, KPMG Panelists: Peter Mullen, CEO, Aon Global Risk Consulting Bill Miller, Director Actuarial, KPMG

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Program Design

Risk Financial Optimization


Program Design Risk Financial Optimization

  • Moderator:
  • Tom Kelly, Partner, KPMG
  • Panelists:
  • Peter Mullen, CEO, Aon Global Risk Consulting
  • Bill Miller, Director Actuarial, KPMG
  • Alan G. Gier, Global Director Risk Management & Insurance President, General International Limited
  • General Motors Company
general international limited gil
General International Limited (GIL)

General Motors’ Bermuda domiciled reinsurance captive

  • General International Limited (GIL) Mission Statement
  • “To provide insurance and reinsurance services and savings/financial efficiencies to General Motors’ affiliates, employees and suppliers worldwide when corporate programs or local retentions are not viable options.”
captive background
Captive Background
  • Formed in 1981 to as a key risk financing tool
    • Operates under Treasurers’ office direction
  • Domiciled in Bermuda due to:
    • Oldest and most established captive domicile in the world
    • 3rd largest re/insurance market in the world
      • Direct access to quality insurance and reinsurance markets and substantial capacity
    • Strong governance & solid financial infrastructure
      • Specialized and insurance focused financial expertise on island
      • Experienced and respected regulator
      • Already achieved Solvency II equivalency
    • Tax treaty with the US allows for consolidation with US parent
      • Treated as a US local insurer via 953 (d) election
  • FATCA Compliant
  • Regular cash distribution to Parent (dividends, capital contributions, tax payments)
    • However key driver is Economic Value Added (EVA) to company
gil evolution
GIL Evolution
  • Continue to seek cost savings, financial efficiencies and innovative uses of the captive to support GM
  • Strategic reassessment of GIL’s role
  • Increased Corporate emphasis on driving shareholder value
    • Cost Reduction – Reduce frictional and structural costs
    • Cash Generation – Began return of excess surplus (no returns previously)
    • Profitable Investments – Ensure adequate return on capital employed
    • Leverage corporate resources
    • Leverage GIL underwriting expertise outside of captive related business
    • Evaluate GIL based on risk-adjusted economic value added and other benefits which accrue to GM
  • Closed GIL UK Office – consolidated activities into GIL Bermuda
  • Transferred profitable 3rd-party/customer programs to GM’s insurance profit centers (GMACI, GMAC Re, etc)
  • Outsourced Management of GIL
  • Reduce Cost
  • Reduce Headcount
  • Drive Efficiencies
  • Corporate wide accounting implemented
  • Branch operation set up in Washington D.C.












Captive formed with initial cash injection of $2M

IEB Inception

gil value proposition
GIL Value Proposition
  • Lowers total cost of risk
    • Allows retention of premium expense “within the family” where insurance is legally or contractually required for non-catastrophic risks (e.g., automobile liability, marine)
    • Provides access to reinsurance underwriting capacity at lower cost
    • Provides access to US terrorism insurance program (TRIEA)
      • US Branch operation domiciled in Washington D.C.
    • Provides budget stability to subsidiaries for volatile risks within GM’s corporate retention
    • Takes advantage of global spread of risk
    • Provides corporate visibility and predictability to costs otherwise hidden within subsidiaries
    • Proactive loss control
  • Platform for capturing additional income opportunities from customers’ insurance needs
gil economic value added eva to gm
GIL Economic Value Added (EVA) to GM
  • GIL’s main metric is its Economic Value Added (EVA) to the Company. This is measured by;
    • Actual benchmark savings
    • Elimination of insurance purchases
    • Financial efficiencies gained and achieved
programs underwritten
Programs Underwritten
  • International Employee Benefits
  • Non-US Liability
  • Worldwide Marine
  • Other programs
    • Global Excess Liability and Global Property fronting
    • Business Travel Accident
    • GM Household Goods (transit risks for Internaional Service Personnel)
    • Customer facing programs
programs underwritten1
Programs Underwritten
  • What do we look for in a Global Fronting Insurer?
    • Underwriting Control ceded to captive
    • Superior administration
    • Claims handling
    • Security
    • Reputation
    • Alignment with long term view and strategic partnership
gil ieb philosophy
GIL IEB Philosophy
      • Only pay for benefit promise
    • Cost of claims plus administration costs
    • As close to self insured as possible
  • No change to corporate approved benefit design
  • Minimize disruption for local business unit and employees
    • No need to change providers to get better financial efficiency
    • No need for local staff to manage/broker renewal of programs
international employee benefits
International Employee Benefits
  • Two Global Fronting Insurers (Generali & Maxis)
  • Issues all local policies for GM business units outside the US
  • Premium rates set in consultation with Granite, GIL and local business unit
  • Coverage parameters set in consultation with local management
  • Fronting insurer provides administrative and claims support to local business unit per standard local insurance contract
  • Premiums and claims are accounted for centrally and ceded 100% to GIL, less administration expenses
  • Central Control (GIL and International Employee Benefits Department)
  • Eliminates profit element from an insured program and underwrites to GIL’s breakeven philosophy
  • Benchmarks all costs and service provisions
  • GIL combines and manages losses across business units in line with the “One Company” vision
  • Reduce structural cost to the business units
  • Provides improved transparency to loss trends and emerging claim issues
global casualty
Global Casualty
    • Non US Liability program for all territories outside USA
  • Fronted by ACE
  • Auto, Employers’, Products, General Liabilities and Workers’ Compensation
  • Rationale
    • to comply with regulatory requirements for casualty cover
    • loss control/management
    • control over the global claims handling process
    • manage product risk (ERM)

World-wide Marine

    • World-wide Marine Program covering transit of products for all territories where we do business
  • Fronted by the Allianz
  • Limit $5M each and every loss
    • Various deductibles from $0 to $250,000 each & every claim worldwide
  • Ocean and Inland transit cover
  • Rationale
    • to comply with local taxation requirements
    • speedy resolution of claims,
    • fronting savings
    • loss control
    • insurance aids the quick transit of goods through international ports
    • local tax compliance issues via insurance certificates
captive reinsurance vs the market
Captive Reinsurance vs the Market
      • Captive programs always beat the market over the long term
    • Our target is for premiums to equal claims plus administration cost
  • Can business units sometimes get cheaper quotes?
    • Buy-in the risk but in time insure premiums will increase to cover costs plus profit
  • Can’t business units change every year to get cheapest quote?
    • Budgeting uncertainty and volatility
    • Market fatigue
    • Excessive administration
    • Loss of market leverage
    • Limited expertise
    • Loss of control
    • Hard to maintain long term relationships

Peter Mullen, Chief Executive Officer

Captive & Insurance Management

Aon Global Risk Consulting

what else can i do with my captive
What else can I do with my Captive?

A systematic approach to maximizing captive utility

Optimising utility


Aon Limited | Global Risk Consulting | Captive and Insurance Management

captive utility
Captive Utility

Aon Limited | Global Risk Consulting | Captive and Insurance Management


Bill Miller, Director Actuarial

KPMG Advisory Limited

optimizing captive profitability
Optimizing Captive Profitability


Backdrop of market and cost trends

What these trends mean for your captive

Claims management

Use of data analytics to identify areas for performance enhancement

Other considerations for optimizing captive profitability

Cost trend uncertainties

backdrop of market and cost trends
Backdrop of Market and Cost Trends

Primary insurance rates generally increasing modestly – low investment income requires a lower combined ratio

Reinsurance rates continue downward slide

Primary cost trends are generally benign across most LOB’s and geographies

Excess layer cost trends are more difficult to assess, particularly on long tail lines like WC

what these trends mean for your captive
What These Trends Mean For Your Captive

Rising primary rates and declining reinsurance rates suggest opportunity for increasing use of Captive and reinsurance – greater control, lower cost, higher profitability

Benign cost trends may be masking underlying inefficiencies in program

On average costs are barely tracking with CPI

Frequencies continue to decline generally

Variation across LOBs, geographies and industries

Goal should be making smart investments to maximize performance -> continuous improvement

claims management
Claims Management

Key metrics to compare against peers (industry/geography/company size)

Dilemma – avoiding the surprise of adverse claim development: small percentage of claims drive high percentage of loss development

Settlement strategies against backdrop of MSAs and aging workforce

How many large losses should you expect to have?

Are you spending too much for litigation costs, medical management?

Assessing overall claims performance

Predictive Modeling Claims Outcomes

other considerations for an effective captive
Other Considerations for an Effective Captive

Allocating costs to profit center and division

Having a strong corporate safety and risk management culture

Vendor performance management

cost trend uncertainties
Cost Trend Uncertainties

TRIA renewal

Affordable Care Act

Tort law changes, e.g., California MPL and WC

Medicaide expansion and impact on MSA and primary coverages

optimizing captive profitability1
Optimizing Captive Profitability


Importance of knowing how you compare to industry and peers and, if not at or exceeding averages, why

Identifying areas for improvement

Claims and vendor management are critical

Data analytics are key to outperforming peers in the short and long terms