Reacting and adapting to challenges – a discussion with the owners of pioneering and creative captives

Reacting and adapting to challenges – a discussion with the owners of pioneering and creative captives

Speakers:• Maria Sheffield, Corporate Counsel, Caterpillar Financial Services

Corporation• Paul Berkemeier, Director, Global Risk, The Coca-Cola Company • Brian Warren, Director, Business Risk Management, Microsoft

Moderator:• Mike Parrish, Senior Vice President & Business Development

Lead, Marsh Management Services (Bermuda) Ltd.

WHAT ARE CAPTIVES BUILT FOR?

A SAFE HARBOR?

THE RISK CONUNDRUM

• “Thereareknownknowns.Thesearethingsweknowthatweknow.Thereareknownunknowns.Thatistosay,therearethingsthatweknowwedon'tknow.Buttherearealsounknownunknowns.Therearethingswedon'tknowwedon'tknow.”

• - DonaldRumsfeld

THE RISK FRAMEWORK

CATERPILLAR - CAPTIVE VALUE

• Key Objective: Effective risk finance management that includes the identification, quantification, cost-effective financing and control of all risks that have the potential to adversely affect our shareholders, customers, and employees.

• Strategy: Provide certain insurance products internally to drive more predictable costs and control over key risks.

• Team: Risk Management, Legal, Treasury, Tax, Accounting, and HR

• Benefit: Control

Insurance risk management today is a critical business function, underpinning the operational, financial, accounting, and strategic health of a

company.

CATERPILLAR INSURANCE COMPANY LTD

• SupportincreasedPINS(%ofindustrysales),POPS(%ofpartssales)andDCAL(%ofcustomeracceptanceofdealerservicebasedonpartssoldbyservicedepartmentovertotalpartssoldatdealership).

• Supportlifecyclesolutionsandfinancialriskmanagement.

• Providetheenterpriseasourceofstableearningsduetothefundamentallystablebusinessmodelofinsurance.

• Maximizeenterprisetaxadvantagesthroughtheinsurancelegalentitystructure.

Caterpillar Insurance Company, Ltd.

CAPTIVE ROLE IN CATERPILLAR ENTERPRISE

Captive Role in Caterpillar Enterprise

• 1983: Formed CICL • 1984: Formed CISC• 2000: Formed CIHI • 2001: Formed CPSC• 2002: Acquired CIC • 2004: Acquired CLIC • 2008: Formed CICSB

CAPTIVES OVERVIEW

THE COCA-COLA COMPANY –CAPTIVE VALUE

• Pooling different risks• Better control on policies• Reduce insurance premium costs• Benefit from better claims experience• Control the investment policy• Tax efficient

MICROSOFT CAPTIVES

CypressFidalgo► Est.2000► Vermont► Originalpurpose

► Finite► Now

► Dormant

► Est.2008► Arizona► Originalpurpose

► Propertyfront,TRIA

► Now► GlobalProperty► Terrorism

► Est.1998► Bermuda► OrcasBranchest.2008-

Vermont► Originalpurpose

► Medbenefits► Now

► CLIP► EmployeeBenefits► Azure&O365LoL

Orcas

ENTERPRISE RISK ISSUES

• How are “Enterprise” risk issues identified & managed:

• Examples:- Pandemic; Political risk; IP risk; Reputational risk; Market disruptors; Data security (Cyber)

• What role does the insurance market play in mitigating these high-level risks?

• Can a captive add any economic value in this category of risk?

THE CYBER NIGHTMARE

• No Chicken Wings &Cheesy Crust……

OPERATIONAL RISK ISSUES

• How are “Operational” risk issues identified & managed:

• Examples:- PD/BI; Nat Cat; Supply/Demand chain disruption;

“People” Risks (staff welfare; succession planning; labor risk (union disruption)

• What role does the insurance market play in mitigating these operational level risks?

• Can a captive add any economic value in this category of risk?