Addressing an Increasing Attachment Point

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1 Addressing an Increasing Attachment Point with a Blended Structure Excess Markets Layer A Single Integrated Policy with Client Funding & Risk Transfer Components: $400M Policy Period: 3 yrs (subject to annual review/lta clause). Premium: To be paid in three annual installments. Traditional Risk Transfer Insurance Layer Includes client s funding, structuring fee, Risk Transfer charge, commission. RT required attachment point $250M Unfunded premiums collateralized or credit risk assumed by AIG Structured Insurance Layer A portion of each premium installment (client funding) will be credited into a notional experience balance (NEB). NEB will be debited for loss payments and credited with interest in the Structured Insurance Layer. NEB final balance (if positive) can be returned to the insured in exchange for total release of liability. Structure: Current attachment point $100M Limit funded over time with full limit Risk available at inception Transfer Client or Client s Captive Retention Depending on client needs, the Structured Insurance Layer may blend client funding with a Risk Transfer component to address certain objectives, e.g., risk transfer applies after a certain amount of loss. Collateral for outstanding NEB payments to be agreed on a client specific basis. Figures shown are for illustration purpose only. Global Risk Solutions Your Global Partner for Non-Traditional Solutions to Unique Risks 1

2 Difficult to Address Risks ALTERNATIVE SOLUTIONS CUSTOMIZED RISK TRANSFER Industry Financial Services Motivation A global financial services institution had contractual obligations with its clients requiring that it purchase a certain level of Errors & Omissions (E&O) coverage. However, the company found that the insurance market was only prepared to offer it limited capacity at what it believed was exceedingly high retentions and premiums. Structure A customized risk transfer solution to provide proof of a certain level of insurance Term Four years Coverage(s) Claims made and reported Errors & Omissions, Fiduciary and Blanket Bond Limit Excess coverage over retentions; aggregate limits over the policy period of $100 million; the company participated i t on a quota share basis Retention Variable; between $500,000 and $20 million per occurrence for E&O, Fiduciary and Blanket Bond Potential Allows the company to continue business operations by cost-effectively filling the holes Benefits in its insurance program Provides desired retention and significant capacity Enables the company to maintain a considerable amount of control over claims handling Global Risk Solutions Your Global Partner for Non-Traditional Solutions to Unique Risks 2

3 Multi-Year Professional Liability ALTERNATIVE SOLUTIONS BLENDED STRUCTURE Industry Technology Motivation A large multinational technology company had significant professional liability losses over the previous five years. Losses exceeded the limits of its annual errors and omissions coverage for at least one of those years, and there was a significant risk of recurrence. As a result, the company was facing higher retention requirements and increased premiums upon renewal. Structure A blended structure combining client funding (layer A) and excess risk transfer (layer B) Master policy issued to the parent company and policies issued to local subsidiaries by local AIG insurers Program designed to be reinsured to the parent company s captive under a single contract for multiple reinsureds; the captive would then retrocede all liability to AIG Term Coverage(s) Three years Professional Liability Limit Layer A: 30 million per occurrence excess 20 million SIR; 30 million annual aggregate; 60 million in the aggregate over the policy period Layer B Limit: 20 million per occurrence excess Layer A; 20 million annual aggregate; 40 million in the aggregate over the policy period Retention Notional Exp. Potential Benefits SIR of 20 million per occurrence 30 million funded over a three year period Provides the opportunity to fund the primary layer over three years while having the full limit available from policy inception Includes a higher, more cost efficient attachment point for the risk transfer layer Provides multi-year coverage, creating price stability Allows for the potential to benefit from favorable loss experience Global Risk Solutions Your Global Partner for Non-Traditional Solutions to Unique Risks 3

4 Product Liability ALTERNATIVE SOLUTIONS BLENDED STRUCTURE Industry Manufacturing Motivation A global manufacturing company needed primary and excess product liability coverage but found limited capacity and exceedingly high retentions and premiums in the traditional insurance market. The company was also required to provide evidence of insurance. Structure A blended structure combining client funding and risk transfer Layer A has an initial deposit premium of $5 million with additional premium of up to $10 million for aggregate Layer A losses excess of $5 million in the aggregate Layer B (excess risk transfer layer) is $20 million per claim and $20 million policy aggregate Term One year Coverage(s) Claims made and reported product liability Limit $30 million per occurrence and $35 million aggregate Retention $10,000 per claim until paid losses exceed $15 million, then $1 million per claimant Company also retains $10 million in aggregate losses excess of $5 million Notional Exp. $5 million Potential Enables the company to provide evidence of insurance Benefits Allows the company to benefit from favorable loss experience on the primary layer Provides protection against catastrophic losses Global Risk Solutions Your Global Partner for Non-Traditional Solutions to Unique Risks 4

5 Professional Liability GLOBAL FRONTING FULLY FUNDED STRUCTURE Industry Healthcare Motivation A continuing care retirement community had to demonstrate financial responsibility via professional liability insurance in order to meet licensing requirements. Traditional insurance was not economically attractive. Structure Fully funded structure Term One year, annually renewable Coverage(s) Claims made and reported Professional Liability and General Liability Limit $1 million per claim $3 million in the aggregate, inclusive of allocated loss adjustment expenses Retention ti $500, per claim, inclusive i of allocated loss adjustment t expense Notional Exp. Function of the deposit premium less loss payments plus interest credited Deposit premium of $3 million Potential Allows the company to satisfy its financial responsibility requirement Benefits Is more cost-efficient than traditional insurance structure Provides flexibility to add coverage and/or capacity, as well as to terminate the program each year Allows the company to benefit from favorable loss experience Global Risk Solutions Your Global Partner for Non-Traditional Solutions to Unique Risks 5

6 Structured Solution Convertible to Captive GLOBAL FRONTING FULLY FUNDED STRUCTURE Industry Industrial Services Motivation A company was facing a 400% increase in its General Liability self-insured retention (SIR) at renewal, as a result of $10 million in aggregate losses excess of its $1 million SIR over the last 3 years. Due to improved risk management strategies, they believed recent loss trends would end. Structure Term A fully funded structure to insure the increased SIR: Deposit premium of $10 million, paid in three annual installments Premium and policy aggregate g limit may increase by up to $5 million if incurred losses exceed $10 million loss trigger At policy end, any residual balance would be returned to the company Three years Coverage(s) General Liability Limit $3 million per occurrence $10 million policy term aggregate, with a $5 million optional reinstatement of aggregate limit Retention $1 million per occurrence Notional Exp. Potential Benefits Function of the deposit premium less loss payments plus interest credited $10 million Positive balance returned to the company can be used as capital to form captive Company can revert back to conventional insurance at program end, if circumstances change Full limits in place at policy inception with insurer assuming credit risk Provides structure for increased aggregate limits, along with multi-year price/capacity stability Premium payments structured to reflect historical and prospective loss experience Global Risk Solutions Your Global Partner for Non-Traditional Solutions to Unique Risks 6

7 Disclosure Global Risk Solutions is a division of AIG, the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information please visit our website at and the Global Risk Solutions pages at Products are subject to underwriting guidelines, review and approval. Products may not be available in all jurisdictions. This presentation does not constitute an offer to sell any of the insurance coverages or other financial products described herein. The purpose of this presentation is to provide information only and you should not take any action in reliance on the information contained in this presentation. Whilst every effort has been taken to ensure the accuracy of the information in these pages, we make no representation and/or warranty express or implied that the information is correct, complete or up to date. Scenarios and descriptions are offered only as summaries and illustrations and these may not include all terms, conditions and exclusions of the products described herein. Please refer to the final documentation for complete terms, conditions and exclusions which may vary based on individual requirements. We do not provide legal, credit, tax, accounting or other professional advice, and you and your advisors should perform your own independent review with respect to such matters as they relate to your particular circumstances and reach your own independent conclusions regarding g the benefits and risks of any proposed p transaction. We will not be liable to you for any loss or damage of any kind (including, without limitation, damage for loss of business or loss of profits) arising directly or indirectly as a result of reliance on the information contained in this presentation American International Group, Inc. All rights reserved. American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG Common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange. AIG Europe Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Registered in England: Company Number Registered Address: The AIG Building, 58 Fenchurch Street, London EC3M 4AB Global Risk Solutions Your Global Partner for Non-Traditional Solutions to Unique Risks 7 C082713