JUN 8 – 10, 2015
Title Slide
www.bermudacaptive.bm
Presenters
Speakers:
• Jeremy Brasier, EVP, RFIB (Bermuda) Ltd.
• Christopher Ridge, President, Annapolis Consulting Group Inc.
• Jo Spittle, VP Underwriting, AmTrust Financial Services, Inc.
Moderator:
• Bob Forness, CEO, MultiStrat Re
Captive Capital and Collateral - Agenda
• Introductions
• Key Topics
– Captive Needs
– Reinsurance Options
– Reinsurance Solutions
– “Candidate” Captives
– Cost of Status Quo
– Capital & Collateral Relief
• Q&A Panelists
• Q&A Audience
Bob Forness, CEO, MultiStrat Re
MultiStrat Group
Participating QS Reinsurers
R E I N S U R A N C E
R E I N S U R A N C E
R
E
I
N
S
U
R
A
N
C
E
Jeremy Brasier, EVP, RFIB (Bermuda)
Jeremy started his career in London structuring reinsurance
protections for syndicates, subsequently running the US
division of a Lloyd’s broker. He moved to Bermuda in 2002
to join a specialist casualty reinsurance broker.
Joining RFIB (Bermuda) Ltd in 2010, Jeremy draws upon his
broad P&C reinsurance experience to deliver structured
solutions for the Alternative Risk sector.
RFIB is an independent international insurance and
reinsurance broker headquartered in London, providing
focused, effective and bespoke solutions for our clients.
Jeremy holds a Bachelor of Engineering degree in Ship
Science from the University of Southampton, UK.
RFIB
RFIB is an independent international insurance and
reinsurance broker and is majority owned by
management and staff. From our headquarters in the
heart of the City of London's insurance sector and seven
offices in major international centres, RFIB provides
excellent service across its specialist lines of business.
We provide focused, effective and bespoke solutions for
our clients. We access a diversified book of business in
significant developing economies and are renowned as a
producer of innovative, profitable and specialist business
to the London and international markets.
Chris Ridge, President, ACG
Chris joined ACG in 2009 and has over 20 years of legal,
executive management, consulting, regulatory compliance
and technical experience in the field of alternative risk
finance.
He has served as a lawyer, captive manager and consultant
to captive insurers throughout their full life cycle - from
formation to operational management to ultimate closure.
Chris holds a Law Degree from Loyola University, a Master’s
Degree in Risk Management & Insurance from Florida State
University and a Bachelor’s Degree in Business from the
University of South Carolina.
Annapolis Consulting Group (ACG)
ACG is an international consulting firm specializing in the
run-off of captive insurance portfolios and companies and the
resolution of complex claims and insolvency matters.
ACG expedites optimal outcomes through a veteran team of
industry experts, including accomplished professionals in the
fields of captive operations and management, run-off
accounting, legal, bankruptcy and insolvency, finance and
international jurisdictional analysis.
Jo Spittle, VP Underwriting, AmTrust
Jo began her career in 2003 in London as a Casualty
Reinsurance Broker. In 2007 she moved to the US and
worked across the full spectrum of the reinsurance and
insurance business, specializing in professional liability.
In 2011 Jo moved to Bermuda to work as a casualty
underwriter for AII Insurance Management Limited.
Jo graduated from the University of Buckingham in 2003 with
First Class Honours, where she read Accounting and
Financial Management.
AmTrust – Product Mix
Operates in Diverse, Lower Volatility Businesses
Product Mix 1Q15
Other
Commercial Auto
Workers’ Compensation
Other Liability
Warranty
GWP 1Q15 $1.7 billion
AmTrust – Who We Are
Countries
AM Best Rating
Employees
A
5,000+
Years of Operation
Assets
Sales Agents
Market Capitalization
Total
Capitalization
$2.2 Billion
17
$14 Billion
9,400
Shareholders’ Equity
17
$3.1 Billion
$4.9 Billion
AmTrust – Financial Highlights
1Q15 Financial Highlights
Total Assets
Shareholder’s Equity
Annual Common Stock Dividend Per Share
Combined Ratio
($ in millions)
• $14,811 ($1,224 in 2006)
• $2,463 vs. $1,581 1Q14 ($340 in 2006)
• $1.00 vs. $0.80 1Q14
• 89.0% vs 89.9% 1Q14 (91.9% in 2006)
Operating Income 1
• $121.4 vs. 97.4 1Q14
Revenue from Service and Fee Business
• $112.9 vs. $91.0 1Q14
Operating ROE 1
• 26.1% vs. 27.8% 1Q14 (21.3% in 2006)
Capital Strength
• Generated over $1.6 billion in net income – 2006 through 2014
• Raised over $1.3 billion in various debt and equity offerings since 2006
1 Please see
the Non-GAAP Reconciliation at the end of this presentation for important information on this
Non-GAAP measure
Captive Pros and Cons
• Pros
–
–
–
–
–
–
–
–
–
–
Lower costs
Cash flow
Difficult coverages
Risk management
Higher profitability
Risk retention
Proactive loss control
Cost predictability
Access to market
Tax miminization and
deferral
• Cons
–
–
–
–
–
–
–
Softening market
Requires expertise
Legacy exposures
Trapped collateral
Capital strain
Missteps visible
Overreliance on
reinsurance
– Encourages bad
experimentation
– Fronting/rating issues
Captive Life Cycle
Formation
Rarely a
straight line
Growth
Maturity
Death
Financial Benefits and Capital Efficiency
Financial Benefits
Capital Efficiency
• Creates risk certainty defines the risk box.
• Caps exposures within
financial capabilities.
• Improves financial security
of policy issued.
• Allows for transfer of
unwanted / unanticipated
exposures.
• ‘Big Brother’ support.
• Increase capacity
• Improves stability thereby
reducing capital drain
• Enhances balance sheet
• Risk limitation allows for
certainty and reduced capital
allocation, providing for
distributions to parent (to fund
expansion, acquisitions,
shareholder dividends, etc.)
Reinsurance Alternatives
Captive Needs
Capital Growth /
Surplus Relief
Alternative Solutions
Quota share cession – Reinsurer pays the same
losses as the captive. Low basis risk.
Low level Excess of Loss – Reinsurer accepts
severity, Captive retains frequency exposure.
Collateral Relief
Quota Share partnering limits the collateral and
ceding commission enhances retained
economics.
Excess of Loss limits the volatility thereby
reducing the collateral requirements.
Reinsurance Alternatives
Captive Needs
Alternative Solutions
Self insured retention /
Deductible Strain
Retention Reimbursement policies allow the
frequency risk to be wrapped into a captive, with
associated reinsurance potential, thereby manage
year on year volatility.
Hard to obtain coverages
Enhance the captive’s ability to tailor coverage's to
protect the parent.
Reinsurance typically structured to cap the
unexpected or catastrophic outcomes.
Offer capped risk transfer with substantial captive
retention. Catastrophic covers can cross multi line
exposures.
Structured multi year placements.
Organic expansion
Partnerships with other carriers with expertise or
Fronting paper, reinsurer frequency risks.
Known Event Insurance
Reinsurance Alternatives
Captive Needs
Alternative Solutions
Return of capital
Profit Commission, Commutation, LPT
Merger/acquisition/divestiture
Commutation, novation, LPT, captive sale,
Adverse Development Cover,
merge captives for economy of sale.
Legacy/difficult claims
LPT, After the Event, alternative dispute resolution,
structured settlements, annuity, qualified runoff
carrier.
Runoff/closure
Specialists, high layer reinsurance, sale to third
party, LPT, ADC, novation, commutation.
Reinsurance Solutions - Casualty
Captive casualty solutions can include
– customized insurance or reinsurance
– specialty/atypical/new risks
– multiple lines and geographies
– single or multiyear policies
– quota share, aggregate excess of loss
– risk sharing (otherwise recoverable, loss
corridors)
– large profit sharing
– balance in terms of premium to limit
Reinsurance Solutions – Data Requested
Data requested from client
– ground-up paid/case-incurred claims list
– historical premiums/exposures and rate changes
– client loss triangles (if available)
– actuarial reserving or pricing studies (if available
Supplemental data
– industry loss development triangles
– industry increased limit factors/loss elimination ratios
Modeling/analysis
– trend and develop ground-up claims to ultimate
– ground up data to assess future exposures and calculate
price
– estimate expected frequency of claims using ground-up
losses and industry severity distributions
Reinsurance Solutions – Underwriting Approach
Underwriting approach
• Review initial submission – appetite, structure,
size, etc.
• Revert to actual with ground up data (when
available)
• Build structure with actuarial and review pricing
• Discuss options with broker/client
• Submit to committee
• Drafts contracts, execute and bind
“Candidate” Captives
Typical characteristics of Captives looking for legacy
claims solutions:
• long-tail business (WC, AL, GL, environmental
exposures, etc.)
• discontinued lines of coverage
• underwriting years that are particularly heavily
collateralized
• bad relationship with existing fronting carrier(s)
• parent company with need for cash (acquisitions,
expansion, distressed, etc.)
Cost of Maintaining Status Quo
Cost of maintaining the status quo:
• risk of adverse development (ultimate loss remains
uncertain)
• trapped cash collateral
• encumbered lines of credit and LOC fees
• inability to cut ties with a fronting carrier
• administrative expenses (increased management,
TPA, actuarial and audit fees)
• soft costs (employee time, program complication,
etc.)
Capital and Collateral Relief
Possible legacy claim transfer solutions
• Sale of Captive – when all assets and liabilities of
a captive in run-off are sold to a third party.
• Commutation – when previously retained risk is
sold back to the primary insurer (front).
• Novation – when previously retained risk is sold to
a third party insurer.
• Reinsurance solutions – when loss obligations
that have already been incurred and will ultimately
be paid are ceded to a reinsurer.
Questions and Answers
Presenters Q&A -
Moderator
Facilitated
Audience Q&A –
To Follow