Collateral Trust Services

Collateral services backed by the stability of Wells FargoCaptive and deductible, reinsurance, ILS, surety

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Today’s collateral environment

For many companies that employ reinsurance, insurance-linked securitizations, captive insurance, traditional corporate insurance, and surety, the concept of posting collateral continues to pose problems. While letters of credit (LOCs) are used by most companies, they may not be an ideal way to meet your collateral obligations.

First, LOCs are expensive. Second, they encumber a corporation’s credit availability. Fortunately, there might be a better alternative.

The Wells Fargo Collateral Trust eliminates the need for LOCs while improving your company’s available credit and creates significant cost savings.

The trust might make sense for captives that “collateralize” their LOCs. Captives may take the same assets used to collateralize LOCs and deposit them into a trust. It’s that simple.

The collateral trust conceptThe Wells Fargo Collateral Trust is a simple concept. Rather than posting an LOC to guarantee reinsurance, ILS, corporate deductible, captive (US, UK, or EU), self-insurance, or surety programs, one may simply deposit cash or cash equivalents into a trust account. The party that would otherwise be the beneficiary of the LOC is named as the beneficiary of the trust. Establishing a collateral trust allows you to:• Eliminate the credit encumbrances

associated with insurance-related LOCs• Eliminate the associated LOC fees• Retain ownership of the assets• Keep the investment income generated

by the trust

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Collateral Service Provider of the Year Captive Live London (2013, 2014)

Collateral Service Provider of the Year Captive Live Chicago (2012)

Global Best Bank for Insurance Trusts Intelligent Insurer magazine (2011 – 2014)

U.S. — Insurance Trust Team of the Year Acquisition Finance Magazine (2013, 2014)

Wells Fargo Collateral Trust Services is internationally recognized for outstanding products and services

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Wells Fargo Corporate Trust ServiceAs an industry-leading corporate trust provider, we offer a suite of international products and services geared toward public and private companies, government entities, special purpose vehicles, and the banking, securities, and insurance industries.

Benefit from our expertise• 2,200 corporate trust professionals globally• More than 75 years of corporate trust experience• US$2.7 trillion in assets under management• 42,000 accounts administered

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About Wells Fargo• Wells Fargo & Company (NYSE:WFC) is a

nationwide, diversified financial services company with $1.6 trillion in assets.

• Wells Fargo has more than 265,000 team members in 36 countries across approximately 90 businesses.

• Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 8,700 locations, more than 12,500 ATMs, online (wellsfargo.com), and mobile devices.

• We do business with one in three U.S.  households.

Our outstanding reputationWorld’s 35th Most Admired Company (2014) FORTUNE

World’s 11th Most Respected Company (2014) Barron’s

Top 20 Biggest Public Companies in the World (2013) Forbes

Most Valuable Brand in Banking in the World (2015) Brand Z/Brand Finance

Best Global Bank and Best U.S. Bank (2013) Best U.S. Bank (2014)Euromoney

Perfect Score – 100 Corporate Equality Index (2014, 11th year) Human Rights Campaign

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As part of a world-leading, diversified financial services company, we leverage Wells Fargo enterprise to deliver in-house services and customized investment options to help each of our collateral service clients meet their financial goals.

The strength, stability, and performance of Wells Fargo can provide additional comfort to participants in the insurance trust business.

Wells Fargo has a dedicated group of experienced professionals who work specifically on insurance and surety-related trusts.

Our well-established relationships with the parties to the previously described transactions (cedents, reinsurers, ILS sponsors and investors, fronting carriers, and traditional corporate insurers) will facilitate a smooth and efficient set-up process.

As a result of our high-quality service and responsiveness, we have strong repeat referrals with most parties to these arrangements.

The required tri-party trust agreement has been designed and used with many insurance carriers, greatly reducing the set-up time and any associated legal costs.

Our team of administrators has been involved in the creation and administration of more than 1,000 reinsurance, ILS, corporate insurance, and surety-related trusts.

Why use Wells Fargo

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Deductible, captive, and surety programs

UK and EU captive and deductible programs When considering UK and EU corporate insurance, collateral is more and more a part of the equation. Historically, those in the UK and EU posting collateral for their corporate insurance programs, both captive and deductible, have used LOCs.

With offices in London and Dublin, Wells Fargo has created a collateral trust that is an acceptable form of collateral for many UK- and EU-based corporate insurers. The concept is the same for the UK and EU trusts as it is for those in the U.S. Wells Fargo has pre-established the required trust documentation with many of the carriers involved and the relevant regulatory bodies. The benefits of the trust in the UK and the EU are the same as those in the U.S., including cost savings, ease of set-up, accounting benefits, and retention of investment income.

Deductible programsInsurance carriers generally require that corporations involved with insurance “deductible programs” demonstrate that they will always be able to cover their “loss pick” (the sum of their anticipated deductible payments for the upcoming year) as well as any previously unpaid claims from prior years. Historically, corporations have posted LOCs to their insurance carriers to demonstrate their ongoing ability to pay claims. Not only are LOCs expensive, often difficult to obtain, and encumber corporate credit availability, but they also appear as contingent liabilities on a corporation’s balance sheet.

Captive insurance programsRegulators and insurance carriers generally require that captive insurance companies demonstrate their ongoing ability to pay insurance claims. The NAIC and insurance carriers have strict rules as to how captives can demonstrate their ability to pay such claims. The captive usually needs to post some form of collateral. The collateral mechanism most often used is the LOC (often cash-collateralized). In many cases, there is a much better way:the Wells Fargo Captive Trust.

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Reinsurance and ILS collateral

Surety programsIn many business transactions where a financial guarantee is required, surety bonds are the preferred mechanism. Corporations around the world rely on surety bonds as a way of demonstrating to their business partners, government regulators, insurance carriers, and various judicial systems that they will be able to meet their ongoing financial obligations to their respective counterparts. In recent years, surety bonds have become both increasingly difficult to obtain and considerably more expensive. In many situations, the surety providers ask for collateral for the bond to protect themselves from any potential losses. The collateral most often used is the LOC, but the Wells Fargo Surety Trust can be a great alternative.

Reinsurance programsMost reinsurance transactions require a financial guarantee to ensure that the reinsured parties will be paid pursuant to their insurance agreements.

While various types of collateral mechanisms have been used over the years, the Wells Fargo Reinsurance Trust (also known as a Reg. 114 trust) is often the most cost-effective and efficient mechanism for fulfilling these collateral obligations.

• The trust is often significantly less expensive than an LOC.

• Establishing a Wells Fargo Collateral Trust does not require a lengthy and cumbersome credit review process.

• The income from the trust is the property of the depositor.

• The assets in the trust generally remain on the books of the depositor.

• The Wells Fargo Collateral Trust is acceptable collateral for most carriers/cedents/sponsors.

• The trust is easy to set up and dissolve.

• The trust does not need to be renewed each year (unlike most LOCs).

• The trust can often replace multiple LOCs  posted to the same carrier.

• The trust is used in nearly all captive domiciles, including Bermuda, the Cayman Islands, Europe, Guernsey, all U.S. states, and other international domiciles.

Why use a trust in lieu of a letter of credit

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Insurance Linked Securities (ILS)ILS transactions are not reinsurance, but they are very similar. The reasons for and the nature of the collateral required for ILS transactions are largely the same as those for reinsurance. While reinsurance programs need collateral to cover both regulatory and credit risks, ILS transactions require collateral largely for credit risk. Typically, the sponsors of the transaction recognize the possibility that they might be on the hook for the entire program, so they ask for collateral.

Since the sponsors of ILS transactions are more often than not also the cedents on traditional reinsurance transactions, ILS transactions employ a similar trust document as that used for reinsurance transactions. Therefore, for ILS transactions, both the rules surrounding the use of a trust and the types of acceptable collateral within the trust are nearly identical to those of reinsurance programs.

Use of the Wells Fargo ILS Trust in lieu of LOCs will create benefits for the investor while not subjecting the sponsor to additional risk. These benefits include a significant reduction in fees, a reduced workload, and a trust team that excels at establishing and maintaining such trusts.

Our collateral trust team has experience with reinsurance trusts for such structures as traditional reinsurance, CAT bonds, triple X, sidecars, contingent capital, captives, and other ILS transaction types.

Use of the Wells Fargo Collateral Trust is contingent upon carrier acceptance of this alternative. Clients interested in this alternative should check with their carrier to see if this is a viable alternative for their collateral requirements.

Wells Fargo Corporate Trust Services is a division of Wells Fargo Bank, N.A. and may refer business to its affiliates, including Wells Fargo Bank International and Wells Fargo Securities International Limited. Wells Fargo Bank International (WFBI) is primarily regulated by the Central Bank of Ireland and is registered as an EEA Authorised Firm with the United Kingdom’s Financial Conduct Authority and with the German Federal Financial Supervisory Authority (BaFin). Wells Fargo Bank N.A., London Branch (WFBNA) is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Wells Fargo Securities International Limited (WFSIL) is authorised and regulated by the UK Financial Conduct Authority. WCS-1226546 (05/15)

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

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From 1852 to 1918, Wells Fargo transported customers’ important businesses by any means — steamship, railroad, and, where the railroads ended, by stagecoach. The sight of a red and gold Wells Fargo stagecoach, drawn by a six-horse team, inspired confidence in the nation’s progress. It united the east with the west and signaled innovation, the coming of commerce, and brought pioneers one step closer to realizing their hopes and dreams.

Today, the stagecoach remains a unique and identifiable symbol of Wells Fargo. The stagecoach, driver, and horses symbolize how Wells Fargo works together with customers to guide them along their financial journey. It signals to our customers that we are here for them, now and over time, to offer a complete array of solutions from everyday banking, to investments, and wealth management.