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  1. JUN 2 - 4, 2014 Fronting – U.S. and Global What you need to know

  2. Fronting – U.S. and Global – What you need to knowFronting Programs Moderator: • M. Page Rouse, Chief Operating Officer, Granite Management Limited Speakers: • John J. Saur, Underwriting Manager, L&F Holdings Limited • Ray Mattholie, Group Risk Management Adviser, Jardine Matheson Limited • Brian McNamara, Senior Vice President, AIG Global Risk Solutions

  3. Fronting – U.S. and Global – What you need to know Why use a Front? • Admitted coverages written (e.g., WC, Auto, employee benefits) • Need for rated paper • Policy issuance and claims handling services • Broad range of in-house expertise, including tax, insurance, legal, and regulatory • Enable clients to retain an element of risk, anywhere in the world, via any financing method

  4. U.S. And Global Fronting Programs Fronting Structures Typical Captive Structure • Fronting Carrier Retains: • Fronting Fee • Taxes • XOL Coverage Premium (optional) Owner/Insured Fronting Insurer Reinsurance Captive Captive Manager e.g., dividend payments • Captive Retains: • Underwriting Profit • Investment Income Retrocession Retrocessionaire Premium XOL coverage, e.g., cat cover Claims Collaterale.g., LOC, Trust

  5. Fronting Structures Example 1: Deductible Coverage With a Captive Without a Captive $1,000,000 $100,001 Insured Layer Paid by Carrier Insured Layer Paid by Carrier $1,000,000 $100,001 $100,000 $0 Deductible Layer Paid by Insured Deductible Layer Paid by Insured and Reimbursed by Captive $100,000 $0

  6. Fronting Structures Example 2: Net Line Captive Insurer cedes to the captive only the portion of risk the captive wants to retain • Owner buys XOL cover from Insurer: $50M per occurrence & in the aggregate. • Insurer cedes $400K per occurrence, $800K in the aggregate to the captive(i.e., net line captive) and retains anything above this. Owner/Insured Fronting Insurer Captive Premium Claims

  7. Fronting Structures Example 3: Gross Line Captive Insurer cedes 100% of the risk to the captive • Captive retains some risk. • Excess is ceded to retrocessionaire. Fronting Insurer 100% QS Captive XOL $90M xs $5M Retrocessionaire

  8. Fronting Structures Example 4: Group Captive OWNERS (unrelated) Company A Company B Company C Company D Fronting Insurer Lines of business ceded (e.g. , PI, EL) Captive (owned proportionately) (Reinsurer)

  9. L&F Holdings Limited L&F Holdings Limited John J. Saur Underwriting Manager

  10. L&F Holdings Limited • Captive group wholly owned by PwC network • Formed in 1998 following the merger of PW and C&L • Provides PII cover to all PwC network firms • No third party business • Monoline insurer (professional indemnity)

  11. PwC at a glance • World’s largest professional services network – provides Assurance, Tax and Advisory services • Global network of individual member firms which are separate and independent legal entities • 184,000 employees • 157 countries • US$32.1 billion revenues in FY13

  12. Headcount by region

  13. L&F fronting arrangements • Global fronting arrangement with multinational insurer • Reinsurance of local risk • Fronted policies in 80 territories • Annual reviews to determine where fronts are required • Utilization of AXCO

  14. Fronting challenges • Negotiations with local insurers • Local retentions • Fronting fees • Premium payments • Timely payment of premiums • Cash before cover • Transfer of reinsurance premiums • FX fluctuations

  15. Fronting challenges • Transmittal of signed documents • Accuracy review of signed policies • Wording issues • Claims handling issues • Foreign language translations

  16. Fronting challenges • Financial strength of local insurers • Are direct premium payments allowed? • Are direct claims payments allowed? • Dispensations • Local brokers can assist • Evergreen?

  17. Fronting solutions • Centralized team to implement process globally • Utilization of brokers • Local • International • Communication

  18. Ray Mattholie Global Fronting -an Asian Perspective Ray Mattholie Jardine Matheson -Group Risk Management Adviser Lockhart Insurance Company Limited -Director

  19. Jardine Matheson Group Today

  20. Jardine Matheson Group

  21. Lockhart Insurance - Key Facts 1977 Lockhart Insurance Company Ltd. incorporated in Bermuda 1997Lockhart convertedto a Segregated Cell structure Lockhart has a Bermuda Class 3 license.

  22. Lockhart Core and Segregated Cells Jardine Matheson Group Lockhart Insurance Company Ltd. *Core Business C Cell Business B Cell Business D Cell Business E Cell Business A Cell Business F Cell

  23. Lockhart PD BI Program US$x00M Reinsurance Panel excess $yM Lockhart fronted US$y0M AIG fronted Lockhart retained combined annual aggregate BU(1) $xM per occ. BU(3) $yM per occ. BU(2) $yM per occ. BU(5) $zM per occ. BU(4) $zM per occ. BU(6) $zzM per occ. BU(7) $yyper occ. Various local deductibles

  24. Jardine Matheson- Fronting as part of Risk Financing strategy • Captive ‘Core’ Fronts for XS Program • Flexibility in choice of insurers • UK ‘Pool Re’ Terrorism • Special covers • The ‘Virtual Team’ - working with the Broker and Captive Manager

  25. The role of the broker • Comprehensive knowledge of local requirements and regulations for every territory • Choice of Fronter to best meet Global footprint: • Ability to meet insured’s requirements • Past performance and ‘track record’ • Form of representation in key territories, i.e. Subsidiary, Branch office or ‘Partner’ • Creating Competition • Prepare a platform for communications, procedures, tracking reports etc.

  26. The role of the broker and Captive Manager • Ensuring Performance Levels are maintained • Know when and how to escalate issues • Documentation • Reinsurance Agreements • Local policies • Evolving the Program to meet changing needs • Risk profile • Local regulations • Resolving problems as they arise • Money Flow

  27. Hot Topics • Money Flow • Collateral • Local issues in Asia • Tariff rating • Cessions • Reserves • Cash before cover • Pure Front v Lead Market as Front • Continuity v Competition - Building long term relationships

  28. AIG Global Risk Solutions Global Risk Solutions (GRS) Your Global Partner for Non-Traditional Solutions to Unique Risks Brian McNamara Senior Vice President, Global Risk Solutions Global Risk Solutions (GRS) Global Risk Solutions (GRS)

  29. The Businesses of Global Risk Solutions Global Fronting

  30. AIG Property Casualty – Global Footprint • 42,000 employees who serve clients worldwide • 51% of premiums written outside of the U.S. and Canada in 2013 • Over $100 million average claims paid each business day in 2013

  31. Global Fronting - Facts • 400+ multinational clients, predominantly in US, Europe and UK • Estimated $4.5 billion in gross premium • A business AIG has been in for over 50 years • 41 GRS staff in Bermuda Global Risk Solutions (GRS) Global Risk Solutions (GRS)