www.bermudacaptive.bm JUN 2 - 4, 2014

Program Design

Risk Financial Optimization

Moderator:•Tom Kelly, Partner, KPMG

Panelists:•Peter Mullen, CEO, Aon Global Risk Consulting

•Bill Miller, Director Actuarial, KPMG

•Alan G. Gier, Global Director Risk Management & Insurance President, General International Limited General Motors Company

Program Design Risk Financial Optimization

General International Limited (GIL)

• General Motors’ Bermuda domiciled reinsurance captive

• General International Limited (GIL) Mission Statement

• “To provide insurance and reinsurance services and savings/financial efficiencies to General Motors’ affiliates, employees and suppliers worldwide when corporate programs or local retentions are not viable options.”

Captive Background

• Formed in 1981 to as a key risk financing tool Operates under Treasurers’ office direction

• Domiciled in Bermuda due to: Oldest and most established captive domicile in the world 3rd largest re/insurance market in the world

Direct access to quality insurance and reinsurance markets and substantial capacity Strong governance & solid financial infrastructure

- Specialized and insurance focused financial expertise on island- Experienced and respected regulator- Already achieved Solvency II equivalency

• Tax treaty with the US allows for consolidation with US parent Treated as a US local insurer via 953 (d) election

• FATCA Compliant

• Regular cash distribution to Parent (dividends, capital contributions, tax payments)

However key driver is Economic Value Added (EVA) to company

GIL Evolution

1981

IEB Inception

2001

• Strategic reassessment of GIL’s role• Increased Corporate emphasis on driving shareholder value - Cost Reduction – Reduce frictional

and structural costs - Cash Generation – Began return of

excess surplus (no returns previously)

- Profitable Investments – Ensure adequate return on capital employed

- Leverage corporate resources - Leverage GIL underwriting expertise

outside of captive related business- Evaluate GIL based on risk-adjusted

economic value added and other benefits which accrue to GM

• Closed GIL UK Office – consolidated activities into GIL Bermuda

• Transferred profitable 3rd-party/customer programs to GM’s insurance profit centers (GMACI, GMAC Re, etc)

2002 2003 2005 2006 2007 2008 2009 2010

Branch operation set up in Washington D.C.

Outsourced Management of GIL•Reduce Cost•Reduce Headcount•Drive Efficiencies

Captive formed with initial cash injection of $2M

Corporate wide accounting

implemented

Continue to seek cost savings, financial efficiencies and innovative uses of the captive to support GM

Today

GIL Value Proposition

• Lowers total cost of risk Allows retention of premium expense “within the family” where insurance

is legally or contractually required for non-catastrophic risks (e.g., automobile liability, marine)

Provides access to reinsurance underwriting capacity at lower cost Provides access to US terrorism insurance program (TRIEA)

US Branch operation domiciled in Washington D.C. Provides budget stability to subsidiaries for volatile risks within GM’s

corporate retention Takes advantage of global spread of risk Provides corporate visibility and predictability to costs otherwise hidden

within subsidiaries Proactive loss control

• Platform for capturing additional income opportunities from customers’ insurance needs

GIL Economic Value Added (EVA) to GM

• GIL’s main metric is its Economic Value Added (EVA) to the Company. This is measured by;

Actual benchmark savings

Elimination of insurance purchases

Financial efficiencies gained and achieved

Programs Underwritten

• International Employee Benefits

• Non-US Liability

• Worldwide Marine

• Other programs- Global Excess Liability and Global Property fronting- Business Travel Accident- GM Household Goods (transit risks for Internaional Service

Personnel)- Customer facing programs

Programs Underwritten

• What do we look for in a Global Fronting Insurer?

Underwriting Control ceded to captive

Superior administration

Claims handling

Security

Reputation

Alignment with long term view and strategic partnership

GIL IEB Philosophy

• Only pay for benefit promise- Cost of claims plus administration costs

- As close to self insured as possible

• No change to corporate approved benefit design

• Minimize disruption for local business unit and employees- No need to change providers to get better financial efficiency

- No need for local staff to manage/broker renewal of programs

International Employee Benefits

• Two Global Fronting Insurers (Generali & Maxis)- Issues all local policies for GM business units outside the US- Premium rates set in consultation with Granite, GIL and local business unit- Coverage parameters set in consultation with local management- Fronting insurer provides administrative and claims support to local business unit per

standard local insurance contract- Premiums and claims are accounted for centrally and ceded 100% to GIL, less

administration expenses

• Central Control (GIL and International Employee Benefits Department)- Eliminates profit element from an insured program and underwrites to GIL’s

breakeven philosophy- Benchmarks all costs and service provisions- GIL combines and manages losses across business units in line with the “One

Company” vision - Reduce structural cost to the business units- Provides improved transparency to loss trends and emerging claim issues

Global Casualty

• Non US Liability program for all territories outside USA- Fronted by ACE

- Auto, Employers’, Products, General Liabilities and Workers’ Compensation

- Rationale

- to comply with regulatory requirements for casualty cover

- loss control/management

- control over the global claims handling process

- manage product risk (ERM)

• World-wide Marine Program covering transit of products for all territories where we do business

- Fronted by the Allianz

- Limit $5M each and every loss- Various deductibles from $0 to $250,000 each & every claim worldwide

- Ocean and Inland transit cover

- Rationale

- to comply with local taxation requirements

- speedy resolution of claims,

- fronting savings

- loss control

- insurance aids the quick transit of goods through international ports

- local tax compliance issues via insurance certificates

World-wide Marine

Captive Reinsurance vs the Market

• Captive programs always beat the market over the long term- Our target is for premiums to equal claims plus administration cost

• Can business units sometimes get cheaper quotes? Buy-in the risk but in time insure premiums will increase to cover costs plus profit

• Can’t business units change every year to get cheapest quote?- Budgeting uncertainty and volatility

- Market fatigue

- Excessive administration

- Loss of market leverage

- Limited expertise

- Loss of control

- Hard to maintain long term relationships

Peter Mullen, Chief Executive OfficerCaptive & Insurance ManagementAon Global Risk Consulting

A systematic approach to maximizing captive utility

What else can I do with my Captive?

Optimising utility

Hybrids

Aon Limited | Global Risk Consulting | Captive and Insurance Management

Captive Utility

Aon Limited | Global Risk Consulting | Captive and Insurance Management

Bill Miller, Director ActuarialKPMG Advisory Limited

Optimizing Captive Profitability

Overview Backdrop of market and cost trends What these trends mean for your captive Claims management Use of data analytics to identify areas for

performance enhancement Other considerations for optimizing captive

profitability Cost trend uncertainties

Backdrop of Market and Cost Trends

Primary insurance rates generally increasing modestly – low investment income requires a lower combined ratio

Reinsurance rates continue downward slide Primary cost trends are generally benign across most

LOB’s and geographies Excess layer cost trends are more difficult to assess,

particularly on long tail lines like WC

Primary Rates Continue to Rise Modestly

US Workers Compensation Cost Trends

1994 to 2008 2008 to 2013

Frequency -4.2% -2.4%

Indemnity Severity 6.2% 0.4%

Medical Severity 7.9% 2.8%

Source: NCCI Annual Issues Symposium

Medical represents 60% of WC costs

WC Cost Trends

What These Trends Mean For Your Captive

Rising primary rates and declining reinsurance rates suggest opportunity for increasing use of Captive and reinsurance – greater control, lower cost, higher profitability

Benign cost trends may be masking underlying inefficiencies in program

On average costs are barely tracking with CPI Frequencies continue to decline generally Variation across LOBs, geographies and industries

Goal should be making smart investments to maximize performance -> continuous improvement

Claims Management

Key metrics to compare against peers (industry/geography/company size)

Dilemma – avoiding the surprise of adverse claim development: small percentage of claims drive high percentage of loss development

Settlement strategies against backdrop of MSAs and aging workforce

How many large losses should you expect to have? Are you spending too much for litigation costs, medical

management? Assessing overall claims performance Predictive Modeling Claims Outcomes

Other Considerations for an Effective Captive

Allocating costs to profit center and division Having a strong corporate safety and risk

management culture Vendor performance management

Cost Trend Uncertainties

TRIA renewal Affordable Care Act Tort law changes, e.g., California MPL and WC Medicaide expansion and impact on MSA and primary

coverages

Optimizing Captive Profitability

Conclusions Importance of knowing how you compare to

industry and peers and, if not at or exceeding averages, why

Identifying areas for improvement Claims and vendor management are critical Data analytics are key to outperforming peers in

the short and long terms