Paul Wagner – AGL Salvatore Sama – Swiss Re
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Paul Wagner – AGL Salvatore Sama – Swiss Re
Transcript of Paul Wagner – AGL Salvatore Sama – Swiss Re
Paul Wagner – AGLSalvatore Sama – Swiss Re
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1. Current Market Conditions
2. Value of Reinsurance
3. Enhance Current Business
4. Product Diversification
5. ERM / Rating Agency Support
Reinsurance Market Soft with Excess
Capital
Reduced Demand from
Buyers
Low Economic
Growth
Increased Regulation
Relatively Benign Cat
LossesEmerging
Risks/ Risk Accumulation
Focus on Top Line
Continuing Merger &
Acquisition Activity
Abundance of Reinsurance
Capacity –Traditional &
Alternative
Persistent Low Interest
Rates
Declining Reserve
Redundancy
Reinsurance Market Conditions
…while US P&C Premiums Ceded to Reinsurers progressively decreases.
Source: Moody’s Global Reinsurance Outlook – 2016
Global Reinsurance Capacity Continues to Grow….
Reinsurer’s are:» seeking growth / new opportunities» Entering into previously unchartered underwriting and strategic territories» Offering new products to stay RELEVANT
What Does that Mean to You?
Services for Mutual Success• Value is derived from having industry experts
at your reinsurer share their knowledge with you – to help you improve and succeed.
Reinsurers have the experience, expertise and data to help you with……Geographic Expansion» Help your enterprise growProduct Expansion» Help create stickiness with your clientsCompetitive Differentiation» Help you defend your portfolio and win in the market
Growth
Reinsurance structures designed to….Help growManage Leverage RatiosOffer higher limitsManage volatilityRetrospective Solutions
Reinsurance as a form of capital
Very few companies go out of business due to expenses…it’s the underwriting.You are renting your reinsurer’s balance sheet.Captives and RRGs tend to be leveraged – your reinsurer should not be.Will your current reinsurer be in business in 30 years?
Reinsurance is an Asset NOT an expense
Reinsurer as your partner» Strategy sessions » Portfolio management and optimization» Pricing of insurance and services» Access to data and relationships
Strategy Assistance
Why do you need it?Vertical Limits (Occurrence Limits)Horizontal Limits (Aggregate Limits)
Additional Limits Capability
Structured Reinsurance» Aggregate Stop-Loss Protects bottom-line against unexpected spikes in severity and/or frequency of losses Extremely well priced in the current environment and multi-year options available» Quota ShareFlexible and cost efficient option for capital optimisation» Offers coverage for special situations, your whole account, or specific portions
Surplus Protection
Take advantage of reinsurers’ intellectual propertyCeding CommissionsExcess Capacity – take advantage
Pricing Assistance
“A Captive Insurance company is established by a parent group or groups with the specific objective to cover the risks to which the parent is exposed to”As a captive you need to match the commercial marketBut……» Do you have the expertise» Is the balance sheet strong enough» Regulation
Product Diversification
Expertise» Centre of excellence for core coverages – MPL, AL, GL etc.» Not the add-ons like Cyber, EPLI, BOP» Policy form – very often varies amongst carriers» A new class of business - “How difficult can it be”Balance Sheet» Commercial carriers offers diversified products “for free”» Commercial market diversified business and balance sheet» Commercial market knows the price – loss leaderStick to your knitting – Brand Credibility
Product Diversification - Credibility
Reinsurers – not just capital providers» Problem solvers» Want to remain relevant to our clientsUse our Intellectual capital » See the whole market» Many different products and many solutionsDiversified products » Insurance paper – low cost of capital» Other vehicles – MGA’sBrand Credibility – what suits best!
Product Diversification
Why is it important?» Key component for corporate stability, growth and development » Essential requirements of Rating Agencies & Regulators» Reinsurance assistance to manage Enterprise RiskTransfer RiskProvide ERM services and advice» Ensure sufficient protection against adverse events via routine practices to manage potential threats
Enterprise Risk Management (ERM)
Effective 1/1/15 for:» Individual insurer >$500m DWP» Insurance Groups >$1bn DWPInternal measure of current/future risksProvide regulators a measure of ability to withstand financial stressUtilized to determine capital levelsPotential benchmark for small companies
ORSA (Own Risk and Solvency Assessment)
BCAR Criteria changing 1st Qtr, 2016Stated Goal “To gain better understanding of a company’s Risk-adjusted Capitalization and Risk Profile”BCAR only part of processNew model sensitive to:» Natural Catastrophes » Investments» Common Stock» Reinsurance in the tailReinsurance Assistance
Rating Agency Support
Paul WagnerAGL Resources Inc.VP | Alternative Risk Techniques
POWER OF CAPTIVES: EMPLOYEE BENEFITS & ERM
CASE STUDY
Ø WHY A CAPTIVE?Ø WHY EMPLOYEE BENEFITS? Ø WHY A CAPTIVE & ERM?Ø WHY HAWAII?
AGL Resources is the largest natural gas-only distribution company in the United States. Its business segments consist of:
§ Distribution Operations§ Retail Operations§ Wholesale Services§ Mid-Stream Operations
AGL Resources has safely served customers with efficient, reliable natural gas for more than 150 years. The largest segment, Distribution operations, operates 7 utilities serving residential, commercial and industrial customers in 7 states:
Georgia Illinois Virginia New Jersey Florida Tennessee
Maryland
Headquarters: Atlanta
Employees: ~ 5,000
Utility Customers Served:nearly 4.5 million
Retail Customers Served:1.1 million
Ticker Symbols: GAS (NYSE)
Newspaper Listing: AGL Res
Quick Facts
STRUCTURE• Single Parent • AGL Resources Inc.
• Domicile • Hawaii
PREMIUMSDirect Write $14.4 MillionReinsurance $ 6.0 Million Total Premium $20.4 Million
Cede $10.1 Million
Net Premium $10.3 Million
GERIC OVERVIEW
STRATEGIES• Risk Financing • Aggregate Basket• Multi-line, Multi-year limits • Enterprise Solutions
Coverage TypesCasualty Property Executive RiskGeneral Liability All Risks/Inc Wind/Quake D&OPollution Boiler & Machinery FiduciaryAuto Crime EPLWorkers’ Comp
Other 3rd PartyTrade Credit Employee BenefitsWeather Extended WarrantyCyber Wrap-Up Construction
Surety Risk
GLOBAL ENERGY RESOURCEINSURANCE CORPORATION
(GERIC)
WHY A CAPTIVE?
3 Power Drivers
Direct
Access
Reinsurance
ö ö
Insurance Program Pre-Captive
Property
Auto andG
eneralLiability
Workers’
Compensation
Directors &
Officers
Crime
Fiduciary
Boiler &M
achinery
($ - Thousands)
STATUTORY
POLICY TYPES
COVERAGE LIMITS
Employm
ent Practices Liability
Traditional Insurance: Placed by a broker with commission and primary carrier costs
Self-insured retention
(Not to Scale)
In a typical Traditional Market,
each line of coverage has a separate large
limit.
Each silo represents one line of coverage.
Silo Limits in MillionProperty $400Boiler Machinery $250General Liability/Auto $500Employment Practice Liability $125Directors’ Officers $165Crime $ 10Fiduciary $ 90
Total Annual $1540
Traditional Market
Captive Multiline
Total Annual Blended $900
CAPITAL OPTIMIZATION
Traditional Market
Annual Limits 1.540Bx3
4.620B
Captive Multi-Year
Limits .900B
CAPITAL OPTIMIZATION
Friction Costs
Traditional Market
Specialized Commissioned
Broker
The
Silo
Stru
ctur
e
Each silo = one line of coverage.
Specialized Underwriter
A separate large limit.
Re-purchased each year
EMPLOYEE BENEFITS• ERISA Plans
• Obtained US Department of Labor (DOL) exemption
• DOL Criteria
• Minimum “A” rated carrier as front
• Domestic U.S. domicile or offshore captive with U.S. branch
• Employee benefits need to be enhanced as a result of the transaction
• Obtain Fiduciary Report
• Basic and supplemental life
• Long term disability
• Retiree medical
• Active medical
• Medical stop loss
• Basic and supplemental life
• Long term disability
• Retiree medical
• Active medical
• Medical stop loss
Building An Employee Benefits Captive
• Accidental Death & Dismemberment
• Business Travel Accident
• Non-qualified benefit
• Pension
• Accidental Death & Dismemberment
• Business Travel Accident
• Non-qualified benefit
• Pension
STANDARD COVERAGE
LESS COMMON COVERAGE
ILLUSTRATION
Finance
Risk Management
HR Group Life & LTD
RetainsFronting Fees + 20% Exposures
“A” Rated Carrier
Cedes 80%
Premium less fees & Exposures
Trust or LOC
Annual Fiduciary Report
CaptiveReinsures
80% Exposures
w/Caps
Purchase Policy
Legal
Top 5 Reasons to use a Captive
5. Improved Data/Control Management
4. Tax Advantages
3. Efficient Use of Capital
2. Improved Cash Flow
1. Reduce Employee Benefit Costs
Non-ERISA plan • Medical Stop Loss provided directly to company, not employees
Effective Risk Management Involves Control of All Risks, Including Brick And Mortar And Human Capital Risks
DOES THIS FIT HERE??DOES THIS FIT HERE??
PREMIUM
RETENTION
OPTIMIZE
öö
WORKING LAYER
BUFFER ZONE
CATASTROPHIC LAYER Unexpected Losses
Not known to occur
Reinsurance
Unexpected Losses
Known to occurCaptive
Retention
Expected Losses Business Unit
BIG PICTUREHOW IT FITS
BUFFER ZONE Large Premiumto Loss Ratio Base Premium
BIG PICTUREHOW IT FITS
CATASTROPHIC LAYER Small Premiumto Loss Ratio
Bundle Volume Discount
Within a Captive, a 3 year Stop Loss Feature (Basket) optimizes Enterprise Expense/Risk that includes Operational, Financial & Employee Benefits Exposures in a Pool.
Strategic Structure:
• Unexpected , Non-correlated Exposures• Spread the Risk• Pool the Premium• Share the Loss• Manage the Volatility
Limits and Retention Levels for the Portfolio are selected to maximize Enterprise Net Premium Savings.
ENTERPRISE BASKET
BIG PICTUREWHY IT FITS?
Property / Casualty
Property
Employee Benefits Weather
D & O
Crime
Fiduciary
Liability /Auto
Group Life / LTD
Medical Stop Loss
CAPTIVE RETENTION
Basket__M
__M
Trade Credit
EnterpriseStop Loss
3 yrs.
Other Operational
Exposure
Other Financial Exposure
BUFFER ZONE
* For Review 2016
ADVANCED RISK TECHNIQUES Strategic Summary:DIRECT ACCESS TO REINSURANCE
Reduce Friction Costs
Program Design/Control
Long Term Relationships
OPTIMIZE RISK/CAPITAL
Multiline/Multi-year
Blended Coverage – Shared Limits
OPTIMIZE PREMIUM/RETENTION
Cost vs. Exposure Analysis
Risk Appetite – Buffer Zone
Stop Loss Baskets
Establish Premium Structure
Hawaii in a class by itself!WHY HAWAII?
COST• Many of the features of the Top Tier with lower operating costs• Exam Cost• Reinsurance Costs
OPERATIONAL SUPPORT• Strong Infrastructure• Management Firms• Legal
STATE/REGULARTORY SUPPORT• Highly Experienced-Licensing captives since 1987• Track record of flexibility and innovation• Accessible & Dedicated Staff
GERIC Advanced Risk Strategy Has Been Introduced In Phases:
2001 Direct Reinsurance
Blended Liability and D&O Limits
2002 Shared Multi-Year Multi-Line Limits
2003 1st Buffer Zone & Retention
2004 Integrated M&A
2006 Employee Benefits
Aggregate Primary and 1st Excess
2007 Blended Primary Property
2008 Medical Stop Loss
2009 Salt Cavern Integrity
2010 Enterprise Stop Loss Basket
2011 Integrated M&A Corporate Program
2013 Reinsured Wrap-Up Construction; Warranties
Trade Credit; Contractual Insurance Default (CID)
2014 Weather HDD Protection
2015 Cyber B.I. & Enterprise Stop Loss Basket Expansion
This presentation is for informational purposes only. Any and all information contained herein is not intended to constitute legal advice and accordingly, you should consult with your own attorneys when developing programs and policies. We do not guarantee any results and assume no liability in connection with this presentation. The subject matter of this presentation is not tied to any specific insurance product nor will adopting these procedures be appropriate in all circumstances.
Innovative Uses for Re-Insurance
