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Operating Your Captive as a Business. Answering the Question “What have you done for us lately?”. Dennis P. Harwick President, Captive Insurance Companies Association (CICA) Anne Marie Towle, CPA Senior Captive Consultant, Willis Global Captive Practice Daniel Kugler

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operating your captive as a business

Operating Your Captive as a Business

Answering the Question

“What have you done for us lately?”

slide2

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
agenda

Agenda

  • History & Current Landscape of Captives
  • Captive Utilization
  • Captive Revenue Generator & Value Delivered
  • Case Study: Snap-on
  • Innovative Uses
  • Questions
captives a brief history
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.
number of captive licenses

Number of Captive Licenses

  • More than 6,000 spread throughout 60+ domiciles globally
  • Over 80% domiciled in the United States and the Caribbean Islands
types of captive utilization
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
entrepreneurial utilizations
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
captive revenue generation
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
value delivered
Value Delivered

Will the proposed plan achieve the following identified benefits?

slide17

“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
snap on tradition
Snap-on Tradition
  • Selling Tools through Vans to Vehicle Technicians
slide20

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)
risk management department
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.
slide22

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
slide23

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
slide24

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
slide25

Our Goal:

  • “…to provide assistance in protecting your business, so you can focus on growing your business.”
captive definition
Captive Definition
  • “A Risk Financing Entity to Assist a Corporation’s Financial, Customer and Business Goals and Objectives”
slide27

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

slide28

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

innovative uses of captives
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
taking risks which ones
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
top line revenue help sell your products services
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)
manage customer s or user s risk
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
help users enjoy your products
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
managing internal risk perceptions
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
holistic insurance risk financing improving captive performance
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
your captive as a business
Your Captive as a Business
  • To eliminate risk is to eliminate profit
  • A better managed risk is a competitive advantage
keep this slide for evaluation information mobile app etc
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

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