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1 How to Download Your VCIA 2013 App vcia vcia2013 Scan Your QR Code While using a barcode scanner, point your devices camera at QR code Download the App Plug in our Username: vcia And Password: vcia2013 View App To get QR Code Scanner, download one from the apps store on your device Another way to download our app is to start from step two. Go to your devices app store and search: VCIA 2013 Annual Conference

2 ERM: Impact on Captive Organizations and Risk Management Tools Christopher Mandel, CPCU, ARM SVP, Strategic Solutions, Sedgwick, Inc. Moderator Linda Conrad Director of Strategic Business Risk, Zurich Insurance Group Amy Galvin, CPA Director of Finance & Enterprise Risk Management, HAI Group Steve Chirico, CPA Assistant Vice President, AM Best VCIA All Rights Reserved

3 Session Overview An Insurer s View: ERM Drivers, Benefits & Components Beyond Traditional Risk Management ERM in a captive - Supply Chain Risk Mgmt. example A Risk Manager s View: Implementing ERM at the Captive Level A Rating Agency View: Good, Better & Best Risk Management Evaluating Captives 2

4 What IS ERM? (An integrated set of ) robust risk-management processes that are carried across the entire enterprise and that form a basis for informing and directing the firm s fundamental decision making. Standard & Poors a process, effected by an entity's board of directors, management, and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives. COSO ERM 3

5 RIMS View of ERM Recognizes that individual risks across the organization are interrelated and can create a combined exposure that differs from the sum of the individual risks Provides a structured process for the management of all risks, whether those risks are primarily quantitative or qualitative in nature Views the effective management of risk as a competitive advantage Seeks to embed risk management as a component in all critical decisions throughout the organization 4

6 Is ERM Process Different? Enterprise Risk Management The organization-wide, strategic process of assessing and responding to the collective risks that impact the ability of the firm to maximize stakeholder value. Examples of risks addressed by ERM: Product recall Investor litigation Regulatory sanctions Supply Chain Competitive challenges Union unrest Political instability Financial fraud Pandemic Risk Response Strategies Terminate Mitigate Transfer Exploit Tolerate Exit Risk Area Preventative Corrective Directive Detective Financing Solutions Insurance Capital Markets Contractual Transfer Hybrid Explore the upside of risk by taking new opportunities Make a conscience decision to tolerate the risk 5

7 Adoption of ERM Practices Risk Management Capability Evolution Hazard Risk Management Corporate Insurance Program Contractual Risk Transfer Active Claims Management Robust Prevention Culture Basic ERM Implementation Formal enterprise wide: Risk Identification Risk Assessment Risk Response Risk Control Activities Risk Monitoring BU Compliance Reporting Full ERM Implementation Common terminology/standards Fully integrated into strategic planning Data quantified where possible Fully integrated across functions & BUs Fully understood accountabilities for risk Cost of all risk types tracked & managed Compliance & regulatory reqmts met Advanced Performance CEO has key risk info to manage performance Fully integrated & embedded risk discipline in operations and corporate culture Finance HR Audit ERM Planning Legal Compliance Insurable Risks Key Business, Financial & Operational Risks All Risk Stakeholders Fully Enabled to Manage All Significant Risks To Mission Accomplishment Ability to Align Strategies for Company Performance 6

8 ERM Internal ERM External The CEO & Board Agenda Growing and Protecting Stakeholder Value Growth Bus. Units Managers Value Creation Performance Returns Shareholders Investors Partners ERM Governance Controls Compliance Enterprise Goals & Objectives Financial Strength Conformance ERM Capital Debtholders Agencies Regulators 7

9 The Real Risks to Success 8

10 Standards: A Guide to Captives? Principles Framework Process Reproduced from ISO Standard 31000:2009 with permission from ISO at Copyright remains with ISO. 9

11 Risk Management Stakeholders Enterprise Risk Management Process Unified Strategy Enterprise Risk Management Process Efficiency Internal Audit Compliance Controller Business Units Key Focus Risk Process Effectiveness Process Efficiency Control Testing Compliance Risks Financial Reporting Business Performance Targeted Outcome Identification and Management of Significant Risks Effective & Efficient Process Execution Effective Controls Regulatory Compliance Sox 404 Compliance Controlling Risks to as well as Meeting Objectives Copyright 2011 Risk and Insurance Management Society, Inc. All rights reserved. 10

12 ERM and Performance 11

13 Components of Best-in-Class Risk Management Strategic Decisions Operating Decisions Risk Communications Risk Knowledge Governance & Accountability Risk Framework & Process Including these key elements in your Risk Management Strategy will support Best in Class results 12

14 Capitalizing on your captive Embedding Enterprise Risk Management Linda Conrad Director of Strategic Business Risk Zurich Global Corporate 13

15 Agenda Drivers and benefits of Enterprise Risk Management Components of Enterprise Risk Management Case Study ERM in a captive Supply Chain Risk Mgmt. example Going beyond your traditional captive 14

16 What is Enterprise Risk Management (ERM)? Highlights the main risks or challenges that may hinder you from achieving your strategic objectives Helps bridge and manage operating exposures across business areas Provides a wide-angle lens into maximizing corporate opportunity 15 15

17 Objective of Enterprise Resilience Establish a proactive process framework for planning, organizing and controlling the activities of the organization in order to optimize the effects of risk on capital, earnings and reputation. Protect ability to stay in business and protect shareholder value Enables effective recovery before customers leave Helps reduce overall cost of risk at improved protection levels Enables more informed risk transfer decisions Helps to improve compliance and strategic planning 16

18 Comparing ERM with traditional RM ERM encompasses both hazard risk and business risk; traditional RM focuses on hazard risk ERM seeks to enable an organization to fulfill its greatest productive potential; traditional RM seeks to restore an organization to former pre-loss condition ERM focuses on the value of the organization; traditional RM focuses on the value of the accidental loss ERM focuses on the organization as a whole; therefore traditional RM is both its own discipline and part of the broader ERM discipline (excerpt from ARM textbook: Risk Financing by Berthelsen, Elliot and Harrison page 1.14) 17

19 The Anatomy of Enterprise Risks Hazard Cause Event 1st ORDER RISKS Physical damage, personal injuries/deaths 2nd ORDER RISKS Consequential losses (production, profits) 3rd ORDER RISKS Indirect economic losses (market share, image, managing upset, personnel, lost investments...) 4th ORDER RISKS 4th ORDER RISKS A consequence of the preceding risks and unacceptable to society Visible, can be evaluated Poorly visible, difficult to evaluate Insurable Not as easily Insurable 18

20 What are the benefits of customer ERM? Studies show that a strong ERM program is a factor in increasing revenue and shareholder value. The incorporation of a sophisticated risk management program yields increased resilience and agility: 80% Increased management accountability (shareholder confidence) 79% Smoother governance practices 59% Increased profitability 62% Reduced earnings volatility (less volatility) 86% Better informed decisions (learn from risk information and mistakes) Source: 2005 study by The Conference Board 19

21 Linking ERM and Risk Culture to Results 2012 survey by FERMA found firms demonstrating a more mature approach to Risk Management have better financial results. Study found a correlation between risk management maturity level and both shortterm financial performance and long-term growth. EBITDA growth of over 10% was generated by 28% of companies with advanced risk management practices, compared with just 16% of firms with emerging practices Revenue growth of 10% was shown by 29% of firms with advanced practices, compared with 18% of companies with emerging practices Creating an active risk culture is correlated with higher growth, as the organization becomes more aware and accountable for risk. Source: 2012 study by Federation of European Risk Management Associations 20

22 Agenda Drivers and benefits of Enterprise Risk Management Components of Enterprise Risk Management Case Study - ERM in a captive Supply Chain Risk Mgmt. example Going beyond your traditional captive 21

23 Enterprise Risk Wheel: The Challenge 22

24 Enterprise Resilience Challenges 23

25 Likelihood Identify, Assess, Improve Where are the key risks? Identify and map key processes Quantify critical activity Solidify value chains Understand your resilience Identify exposures and controls to risk factors Assess and prioritize scenarios against risk appetite Improve and report on risk by implementing mitigation strategies Impact 24

26 ERM and ISO The 7 core components of ERM, according to ISO Internal Environment / Establishing the Context Objective Setting & Risk Criteria Risk Identification Risk Evaluation Risk Treatment Communication & Consultation Monitoring and Review 25

27 Captive reporting dashboard Data capture and analysis is critical Captive dashboard displays pertinent information and also allows drill downs to see more detailed information Reporting becomes much richer as performance trends over time can be analyzed A full featured captive dashboard allows for visualization, automated data feeds Optional application or link to corporate ERM framework 26

28 The starting point: Financial Statements The objective was to display the Financial Accounts within a dynamic Dashboard 27

29 Captive Dashboard 28

30 Dashboard: Selecting a single item Select Just the corresponding items that match the selection are shown in detail 29

31 Brings the source data to one page The Dashboard brings data from different parts of the accounts together, allowing you to see it all together 30

32 Dashboards: Selecting items Select Just the corresponding items that match the selection are shown 31

33 Dashboards: Selecting items Click on any single number here Launches a Form with underlying data 32

34 Launching Forms from BOD Dashboard The Form being launched, the user can explore the detailed information that sits behind the Dashboard summary 33

35 Technology support of ERM in your captive and/or corporation Collect risk data Manage information Communicate and report Increase accountability 34

36 Implementing ERM at the Captive Level Amy Galvin, CPA Director of Finance & Enterprise Risk Management HAI Group 35

37 Why Implement ERM? Create a risk-aware culture within the company (have better and more formal conversations around risk) Raise the confidence of the key stakeholders with regard to risk and the company s preparedness for whatever it may encounter Improve the quality and depth of risk data collection Improve the data analysis and risk reporting for current and future ERM activities Involve a wider group of executives in the risk and mitigation process 36

38 ERM Framework Objectives Identify gaps in the companies current risk strategy and provide an analysis of any such shortcomings for review by management and the Board of Directors Conduct an operational review for major departments and processes and provide recommendations for improvement Evaluate implementation of the risk management framework 6-12 months after the assessment has been completed 37

39 Where to Begin? 38

40 ERM Director Responsibilities Create an annual work plan / key milestones Coach the members of the internal Risk Committee on data quality. Create mitigations for each risk, as necessary Assign owners to mitigations (Risk owners and Mitigation owners can be the same or different) Connect with risk & mitigation owners on a regular basis 39

41 ERM Director Responsibilities Work with Risk Committee to set and allocate mitigation budget using dollar figures Report progress, discuss findings and have regular risk discussions with Senior Management and the Board of Directors Review the timeline to make sure we are still on track 40

42 Risk Committee Responsibilities Educate the Committee Members: ERM Basics and develop a standard Risk Taxonomy Talk about the internal and external environment and how our job is to be in constant assessment of risks and opportunities both internally and externally Discuss what metrics should be assessed and updated on a quarterly, semi-annual, annual basis 41

43 Risk Committee Responsibilities Conduct regular meetings to discuss, as a group, key risks, risks and concerns and the associated mitigations Discuss root causes/risk driver for key risks Scenario planning and risk relationships Determine and discuss key metrics for risk assessment 42

44 The ERM Process Phase 1 Risk Assessment & Prioritization Identify and formally document a portfolio of risks within the organization. Complete interviews with select members of management to identify and discuss enterprise risks Risks are captured and categorized by the following ERM Integrated COSO elements: Strategic Operational Business Market 43

45 The ERM Process Phase 1 Rank and prioritize the identified risks according to: Impact the financial implications in the event the risk occurs Likelihood the probability the risk may occur within business operations Coordinate a facilitated session with the internal Risk Committee to evaluate the prioritization results and discuss: Agreement with the risk prioritization Questions or concerns relative to the risk prioritization High and moderate risks to evaluate impact and likelihood factors for clarification and understanding of overall risk exposure Risks with significant deviation/spread in prioritization results to gain insight on variation 44

46 The ERM Process Phase 2 Risk Treatment Identify and assess how each key risk is mitigated and identify existing control gaps. Identify risk treatment for high and moderate risks Coordinate a discussion with the Risk Committee to evaluate risk treatments and discuss: Agreement with mitigation analysis Identified control gaps Evaluate design and known effectiveness of mitigating strategies Risk management strategy (Avoid, Retain, Reduce or Transfer) 45

47 The ERM Process Phase 3 Risk Validation & Monitoring Establish a validation strategy for each key risk. Validation can be completed by utilizing many options including: Self- Assessments, Internal Audit and/or Third-Party Assistance The key is to effectively design a validation plan to ensure the mitigating strategies are designed and working as intended Additionally, an ongoing monitoring and reporting strategy should be customized so key risks are routinely monitored and reported 46

48 ERM Internal Audit s Role Attends internal Risk Committee meetings Quarterly Reporting to the Board ERM Committee Provide objective assurance to the Board of Directors on the organization s effectiveness of risk management This can include a number of activities but should NOT include: Setting the risk appetite Imposing risk management processes Deciding upon or implementing risk responses Owning responsibility for risk management 47

49 48

50 Challenges Education and Engagement Internal Risk Committee Board ERM Committee Outside Consultants Budget Reporting Format Managing Expectations Fatigue 49

51 Keys to Success Strong support by executive management is critical Identify specific (not vague) risks and potential impact Accountability (for risk and mitigation) clear communication throughout executive management is imperative Clear understanding of the organization s risk appetite, as defined by the Board Focus on top risks Link risks to goals and strategy; tailor the ERM program to the organization s specific business processes, objectives & strategies Understand that ERM is a framework and not an instruction manual or project-task for management to complete in a short time period and check off the list (it may never be complete ) 50

52 Rating Agency View: Steve Chirico, CPA Assistant Vice-President, A.M. Best 51

53 Agenda Enterprise Risk Management Definition Characteristics of Risk Management 52

54 Enterprise Risk Management Business Profile Operating Performance Balance Sheet Strength Enterprise Risk Management is the common thread that links balance sheet strength, operating performance, and business profile ERM = (Identify + Understand + Measure + Manage) Risk 53

55 Enterprise Risk Management Identify, quantify and manage risk establish risk- tolerance levels Recognize potential impact of external factors Topic Title Here competitive, regulatory, legal, economic Tailored to your business and risk profile Function over form Flexible / adaptive / ongoing process 54

56 Risk Management A company s risk management capability needs to meet its risk profile Risk Profile HIGH RISK Risk Management Capability Superior MODERATE RISK Strong LOW RISK Good MINIMAL RISK Weak 55

57 Risk Management cont. Risk Profile HIGH RISK MODERATE RISK Characteristics for Low Risk Profile: Low volatility in earnings and capital Favorable regulatory/judicial environment Low severity claims / low limit policies LOW RISK MINIMAL RISK Limited competition / stable pricing Standardized/unchanging coverages High liquid / stable investments 56

58 Risk Management cont. Risk Profile HIGH RISK MODERATE RISK Characteristics for High Risk Profile: High volatility in earnings and capital Unfavorable regulatory/judicial environments High policy limits / excess layers LOW RISK Strong competition / inadequate pricing New/changing/complex coverages & products MINIMAL RISK Illiquid / volatile / complex investments 57

59 Risk Management cont. Characteristics of Good RM Capability: Good traditional risk management (silos): Market Risk Credit Risk UW Risk Operational Risk Strategic Risk Good capital management: Earnings Debt market Equity market Good knowledge of BCAR Good management and management info: Good decision making Traditional metrics Reliable projections Risk aware culture Limited ERM Capabilities Risk Management Capability Superior Strong Good Weak 58

60 Risk Management cont. Characteristics of Superior RM Capability: Superior traditional risk management Superior capital management Superior management and management info Superior ERM Capabilities: Corporate wide risk aware culture Experienced CRO / ERM committee Well quantified risk appetite / risk tolerance Superior risk identification/ quantification/mitigation/monitoring/ controls Superior Knowledge of Correlations Across lines of business Across risk categories Superior Economic Capital Model Decisions based on risk metrics Compensation based on risk metrics Frequent what if scenario testing Risk Management Capability Superior Strong Good Weak 59

61 Evaluating Risk Management Risk culture of organization Event scenarios per risk type Management s risk tolerance levels: impact on front line business units encourage good risk-based decisions A.M. Best does not and will not prescribe risk management processes 60

62 Recap 61

63 What Have We Learned? ERM and Traditional Risk Management Differ only in Focus Recognizing Real Value for ERM Comes from Connecting its Use to Results Progressive Risk Management Applies its ERM Strategies to Captives Like Other Risks Seeing it as Just Another Source of Risks to Performance Embedding ERM in Your Firm Facilitates its Use as Leverage in a Captive Rating Agencies See Value in the Application of ERM to Captives and Recognize it Accordingly in their Evaluation Process 62

64 Questions and Answers/Panel Discussion Case Study 63

65 Case Study Drivers and benefits of Enterprise Risk Management Components of Enterprise Risk Management Case Study ERM in a captive Supply Chain Risk Mgmt. example Going beyond your traditional captive 64

66 ERM supports holistic risk reduction efforts Consistent process across all risk categories Consolidation of individual ( silo ) risk mgmt. strategies Capital efficiency 65

67 Getting ERM done in the supply chain Utilizing a consistent risk management approach to supply chain Identify critical suppliers based on profitability impact Identify vulnerabilities through comprehensive assessments Quantify risk exposures and benchmark against other risks Prioritize mitigation actions Monitor key risk indicators and test contingency plans Embedding risk management in business processes (procurement, logistics) Consider risk transfer for significant exposures 66

68 Understanding supplier disruption impact Japan Tohoku Earthquake (03/2011) Total economic loss estimate of $ billion Total projected insured loss estimate of over $35-40 billion Initial report of estimated CBI loss between $5-15 billion Many supply chain losses were uninsured (electric outages etc.) Thailand Floods (4th Quarter 2011) Total economic losses of almost $50 billion - Thailand's costliest Total insured losses already at $15 billion but could surpass $20 billion Portion of CBI insured losses still far from being settled Many supply chain losses were uninsured 67

69 Understanding supplier disruption impact Over 85% suffered a supply disruption in 2012 Over 50% had more than one disruption Number of supply disruptions per company per year Source: Zurich-sponsored Business Continuity Institute survey 68

70 Analysis of over 2500 disruptions Accidents Production Problems Labor Unavailability and Shortage of Natural Disasters Sabotage, Terrorism, Crime, and War Financial losses and premiums Demand Variability/Volatility Physical and Regulatory Industry-wide (i.e., Market) Challenges Source: Zurich s supply chain loss event database Lawsuits

71 Understanding supplier disruption impact 9% lower sales 11% higher COGS 19% 20% Nearly 40% of companies go out of business (BCI) Size of Disruption < 1M 14% 25% 22% 1-10M M About 40% of disruptions occur below Tier 1 Source: Zurich s supply chain loss event database 70

72 Understanding supplier disruption impact 10-30% of shareholder value 71

73 Family of Supply Chain risk tools Risk Room Total Risk Profiling Structured approach to defining risk appetite and prioritisation for dealing with risks in the supply chain Provides macro country insights, e.g. political stability, economic status, labour situation NatCat - Location risk Provides exposure information for supplier locations in respect of e.g. floods, earthquakes, windstorm, related transport infrastructure Risk assessment Formalised assessment of relevant areas which are part of the due diligence process within the sourcing activity Risk understanding Profit risk exposure Enables a company to understand its total supply chain profit exposure in terms of a particular location, country or region 72 Business interruption analysis Helps a company model its relevant BI exposures Disruption understanding Helps in the understanding of the level and nature of disruptions in the particular industry or a particular location from a unique database 72

74 Risk Room Provides macro country insights, for example political stability, economic status, labor situation, infrastructure exposures and more. 73

75 TIMELINE!! PROBABILITY Total Risk Profiling (TRP) How can you deal with risks that you don t even know are there? Develop risk scenarios Quantify financial severity, assess probability Define the risk appetite Prioritize risk scenarios Develop improvement plan 1. VULNERABILITY what? where cont rols? A B C 2 Prioritized TRIGGER how? why? when? D E CONSEQUENCES how big? how bad? how much? F IV III II I SEVERITY Structured approach to developing risk scenarios, defining risk appetite and prioritizing mitigation efforts in the supply chain. Aligns with ERM. 74

76 Covering risks not covered by other insurance products 75

77 Agenda Drivers and benefits of Enterprise Risk Management Components of Enterprise Risk Management ERM in a captive - Supply Chain Risk Mgmt. example Going beyond your traditional captive 76

78 Putting ERM and Supply Chain to work in your captive Captive provides infrastructure for risk mgmt. programs Naturally progress towards ERM Consider establishing a mini ERM program within your captive Utilize captive profits to, do an ERM gap analysis, fund training, purchase ERM software, etc. Systematically assess the downside and upside of risk to: Reduce Total Cost of Risk (TCOR) Maximize capital efficiency for investment in opportunity Optimize the portfolio of risk 77

79 Innovative strategies for your captive Soft insurance market is a great time to explore innovative risk transfers via captive Supply Chain, Employee Benefits, etc. Inclusion of additional programs can lead to greater risk diversification, a proven long-term strategy Risk integration can work to optimize handling of exposures Captive regulators are collaborative Changes to captive business plan must be approved by regulators Use them as sounding boards for new ideas 78

80 Benefits by integrating your supply chain risk into your captive program Challenges Features Benefits I need additional supply chain risk transfer capacity to cover my exposures. I would like to consider/use ART (Alternative Risk Transfer) tools such as ILS (Insurance Linked Securities) to address supply chain risk. It s difficult for us to take a high risk retention (deductible) on supply chain risk. I want to avoid potentially high capital allocation to supply chain while making sure that sufficient current-loss funding is available. Utilize my captive to access to the international reinsurance markets. Captive as a superior vehicle to apply ART approaches such as ILS to your supply chain risk. Captive cross class aggregate as facilitator to find optimal retention and transfer level. Captive allows efficient cross class capital (portfolio based) allocation including Supply Chain Insurance (SCI) and other Lines of Business Access additional supply chain (reinsurance) capacity. Avoid high fac premium. Leverage opportunities to arbitrage. Ability to develop and apply ART approaches. Via ILS from Zurich, can access financial capital markets to obtain additional, nontraditional risk transfer capacity (securitize your supply chain risk). Leverage risk diversification across your captive portfolio for supply chain risk. Optimize risk retention across entire captive portfolio including SC Insurance. With SCI in captive, I can easily re-allocate any profit generated on other lines to my supply chain risks (more efficient captive portfolio based capital allocation). 79

81 Benefits by integrating your supply chain risk into your captive program Challenges Features Benefits I would like to focus and/or expand on enterprise risk management in order to implement appropriate risk control and financing solutions to cover my company from potential business and strategic risks. It is difficult to obtain additional budget to perform supply chain risk assessment and purchase coverage. I (and my management) need to understand and consistently report on existing supply chain risk and potential impact on our business. Utilize my captive to promote and facilitate implementing supply chain as part of my overall ERM strategy. Use a captive to generate an alternative path of 'funding for risk assessment and supply chain coverage. Captive infrastructure utilization: With supply chain insurance integrated in my captive, my incidents, claims, premium etc. can be consistently and transparently tracked and reported. Allows a risk manager, Treasurer or CFO to have influence over protecting their company against a significant area of enterprise risk which may have previously been uncovered or outside their usual purview. Get valuable insights (dependencies, supplier exposures, etc.) to further improve my company s ERM strategy. Generate funds to back expense cuts Mitigate budget discussions by having alternative source of funds available Better information and risk insights. Executive awareness and understanding of supply chain risk exposures. Allows strategic supply chain risk management across insurance cycles. 80

82 ERM Summary The current business environment: Erodes value by mismanaged exposure and missed opportunity Requires a broad ERM framework to optimize balance ERM can help: Minimize negative impacts on balance sheet and bottom line Maximize success by removing barriers to achieving objectives Help manage key enterprise exposures such as supply chain risk Provide an opportunity to leverage captive for more effective ERM implementation 81

83 Captive Summary Captives are a proven and long-term solution for handling exposures to risk for corporations Even incremental steps toward mitigation of risks is movement in the right direction now is the time to prepare your captive Captives can assist to focus efforts to fund for and reinsure risk exposures beyond traditional coverages. Captive practitioners are naturally creative and outside the box thinkers - keep thinking about what lies ahead 82

84 ERM can provide bottom-line benefits Zurich improved its operational risk mgmt. framework One business unit reduced operational risk-based capital (RBC) consumption by 21.7 percent when Zurich moved from an asset-based to a risk-based approach for operational risk quantification The business unit then identified high risk exposures, performed a deeper assessment and developed mitigation They experienced an additional reduction of 28.9 % in operational risk capital consumption the next year Operational risk capital not consumed was then available to fund other profitable growth for Zurich 83

85 Questions? 84

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87 Zurich Insurance Group The information in this presentation was compiled from sources believed to be reliable for informational purposes only. All sample policies and procedures herein should serve as a guideline, which you can use to create your own policies and procedures. We trust that you will customize these samples to reflect your own operations and believe that these samples may serve as a helpful platform for this endeavor. 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 the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. Moreover, Zurich reminds you that this cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedures might not be appropriate under the circumstances The subject matter of this presentation is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy. Copyright

88 A.M. Best Disclaimer AM Best Company (AMB) and/or its licensors and affiliates. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT AMB s PRIOR WRITTEN CONSENT. All information contained herein is obtained by AMB from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided AS IS without warranty of any kind. Under no circumstances shall AMB have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of AMB or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if AMB is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities, insurance policies, contracts or any other financial obligations, nor does it address the suitability of any particular financial obligation for a specific purpose or purchaser. Credit risk is the risk that an entity may not meet its contractual, financial obligations as they come due. Credit ratings do not address any other risk, including but not limited to, liquidity risk, market value risk or price volatility of rated securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY AMB IN ANY FORM OR MANNER WHATSOEVER. Each credit rating or other opinion must be weighed solely as one factor in any investment or purchasing decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security or other financial obligation and of each issuer and guarantor of, and each provider of credit support for, each security or other financial obligation that it may consider purchasing, holding or selling. 87