www.bermudacaptive.bm

JUN 2 - 4, 2014

Program Design Risk Financial Optimization

Program Design Risk Financial Optimization

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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

General International Limited (GIL)

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General Motors

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Bermuda domiciled reinsurance captive

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General International Limited (GIL) Mission Statement

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To provide insurance and reinsurance services and savings/financial efficiencies to General Motors

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affiliates, employees and suppliers worldwide when corporate programs or local retentions are not viable options.

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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 • • • • Strategic reassessment of GIL ’ s role Increased Corporate emphasis on driving shareholder value - Cost Reduction previously) – Reduce frictional and structural costs - Cash Generation – Began return of excess surplus (no returns - 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 3 Re, etc) rd party/customer programs to GM ’ s insurance profit centers (GMACI, GMAC 2001 2002 2003 Branch operation set up in Washington D.C

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2005 Continue to seek cost savings, financial efficiencies and innovative uses of the captive to support GM Corporate wide accounting implemented • • • Outsourced Management of GIL Reduce Cost Reduce Headcount Drive Efficiencies 2006 2007 2008 2009 2010 Today Captive formed with initial cash injection of $2M

IEB Inception

GIL Value Proposition

• Lowers total cost of risk - Allows retention of premium expense automobile liability, marine) “ within the family ” where insurance is legally or contractually required for non-catastrophic risks (e.g., - 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

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International Employee Benefits

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Non-US Liability

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Worldwide Marine

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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

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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

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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

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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

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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

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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

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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

Captive Reinsurance vs the Market

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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

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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 Officer Captive & Insurance Management Aon Global Risk Consulting

What else can I do with my Captive?

A systematic approach to maximizing captive utility Optimising utility

• Traditional • Non-traditional Corporate Risks Business Enablers • New revenues • Brand loyalty • Supply Chain • CSR • Pensions • Legacy • Acquisition • Debt factoring Financial Leverage Risk Incubation • Emerging Risks • Enterprise Risks

Hybrids

Aon Limited | Global Risk Consulting | Captive and Insurance Management

Captive Utility

Client

Context Internal/External Utility Four Pillars Capital Modeling Volatility Aon Limited | Global Risk Consulting | Captive and Insurance Management

Bill Miller, Director Actuarial KPMG 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

WC Cost Trends

US Workers Compensation Cost Trends Frequency Indemnity Severity Medical Severity 1994 to 2008 -4.2% 6.2% 7.9% 2008 to 2013 -2.4% 0.4% 2.8% Source: NCCI Annual Issues Symposium Medical represents 60% of WC costs

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