Aon Insurance Managers Bermuda

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1 Aon Risk Solutions Issue Aon Insurance Managers Bermuda A Message from Anup Seth Welcome to the inaugural edition of the Aon Insurance Managers In this Issue (Bermuda) newsletter. As we continue to evolve as a company, we are 01 Message from Anup Seth finding new and effective ways to communicate with our clients and 02 Practice Groups business partners. This periodic newsletter will feature thought 03 Leadership Team leadership from across our three practice groups: Captive Management, 04 Cyber Risk Focus Commercial Re/insurance and Insurance-Linked Securities. 06 Captive Finality Solutions In this edition, we are delighted to provide an overview of our organization structure and strategy in Bermuda, introduce our leadership team and provide insights on Cyber Risk and Captive Finality Solutions. We hope you will find this newsletter to be informative and we look forward to hearing your feedback. Anup Seth Managing Director Aon Insurance Managers (Bermuda) Ltd. Introduction As the preeminent insurance manager in Bermuda, we have a diverse client base of approximately 170 (re)insurance entities. These entities represent a varied range of clients from small/medium size companies to large Fortune 500 companies across a broad spectrum of industries. Aon Bermuda has an excellent team of over 50 professionals whom possess a wealth of knowledge and insurance management experience that is unrivalled amongst our industry peers. In addition, as part of the world s leading professional services firm, Aon Bermuda has access to a wide range and depth of data, services and expertise that we continually leverage to provide value and solutions to our client base.

2 Practice Groups Our business comprises of three distinct practice groups- Captive Management, Commercial Re/insurance (including both life and non-life companies) and Insurance-Linked Securities (ILS). Aon Insurance Managers (Bermuda) Ltd. Captive Management Client Promise Finality Solutions Industry Practice Groups Overview of Practice Groups Captive Management As captive and insurance managers, our aim is to provide services that act as an extension to the risk management structure of our clients. Our services include the efficient operation of the captive, regulatory oversight to ensure the operational compliance with the captive s business plan and the regulations included in the Insurance Act, with the ultimate goal of ensuring financial solvency of the insurance program. Our client base includes primarily class 1, 2 and 3 re/insurers writing varying risks across several industries. Commercial Re/Insurance The Commercial Re/Insurance team provides several services to clients with large and complicated re/insurance business. The target market is Bermuda commercial insurers with general business (Class 3A, 3B and 4) and long term (Class C,D, and E) at various stages including start up, matured/active and run off. Insurance-Linked Securities (ILS) Our Insurance-Linked Securities practice provides a full range of management services to all types of ILS vehicles, including Cat Three Distinct Practice Groups Key Differentiators Partnership Innovation Insight Advocacy United Commercial Re/Insurance Management Non-Life Life Aon Underwriting Managers (MGA) Insurance Solutions Risk Advisory and White Rock Solutions Client Origination Target Operating Model (Project 2020) Insurance-Linked Securities (ILS) Call Bonds Collateralized Reinsurance Rated Reinsurance Bonds, Sidecars and collateralized re/insurance. Having a broad client base provides our team with a unique view of the overall ILS market, and we are intimately familiar with all aspects of ILS management including the set-up, on-going administration, claims management and liquidation cycles of ILS vehicles. Our primary objective is to provide innovative and flexible ILS management solutions to our clients that are delivered by a multidisciplined team of insurance and accounting professionals. Insurance Solutions The Insurance Solutions Division is a specialist team that provides technical insurance solutions and advisory services to our Captive Management, Insurance-Linked Securities and Commercial Re/Insurance clients. The Division supports our clients in all aspects of the requirements clients have for insurance and risk, including strategy development, program and contractual review, claims advocacy and intervention, and the development of appropriate risk transfer models. Risk Advisory & White Rock Solutions Our Risk Advisory practice focuses on helping our clients understand and improve their risk profile. Utilizing Aon s Governance Risk and Compliance online platform, the team also works closely with our commercial clients to develop and implement risk management frameworks. Working with our client relationship leaders, the division also implements Aon s Client Promise, which describes the way we work together with our clients, what they can expect from us, and the value we will deliver. Our White Rock insurance solution is a unique and leading group of insurance and reinsurance vehicles that offers clients a diverse suite of insurance solutions through utilization of Protected Cell, Incorporated Cell and Segregated Account facilities. Client Origination The Client Origination Practice in Bermuda is at the forefront of providing prospective multinational clients with complex re/ insurance solutions via the consultation, formation and management of Captives, Startup / Commercial Re/Insurance Entities, Insurance-Linked Securities (including Cat Bonds, Collateralized Re/Insurance and Sidecars) and Access to White Rock, an Aon owned segregate account company with a general and long-term license in Bermuda. The Client Origination team is also instrumental in providing our existing and prospective clients with guidance and access to Aon s global offering including Aon Global Risk Consulting, insurance and re/insurance brokerage via Aon Risk Solutions / Aon Benfield, and human resources solutions including outsourcing services via Aon Hewitt. Target Operating Model (Project 2020) Project 2020 is a global strategic initiative designed to reshape how we operate and reinforce our competitive edge within the captive industry. To achieve this, project 2020 is structured on two key pillars: Operational Excellence and Talent & Growth, which will allow us to better serve our clients and colleagues. Aon Risk Solutions Issue

3 Leadership Team The Aon Bermuda leadership team has an average of 25 years experience in the re/insurance industry, and a breadth of expertise and experience across accounting/finance, underwriting, broking, risk consulting, claims, and regulatory disciplines. Anup Seth Anup Seth joined the firm as Managing Director of Aon Insurance Managers (Bermuda) Ltd in April 2016, and is responsible for the overall leadership and oversight of the captive & insurance management operations in Bermuda. Additionally, Anup has recently taken on additional responsibility as the global leader of the Commercial Re/Insurance business segment. Anup has over 20 years of diversified international experience with a particular focus in providing specialty commercial insurance solutions to multinational companies. George Leite George Leite currently serves as Executive Vice President and Head of Business Development. He is responsible for the procurement, execution and management of startup/commercial re/insurance entities, Insurance-Linked Securities and captives (including Latin America) across all industry sectors. George has more than 28 years of extensive re/insurance experience in the Bermuda, North America and London markets providing solutions to complex multinational companies. Dawn Simons As Executive Vice President and Head of Captive Management, Dawn is responsible for the overall leadership of the Captive Management practice. This involves directing a team of accountants and support staff to ensure that every client views Aon as a trusted business partner and receives superior value and personal service. Dawn has worked in the insurance industry, with a focus on captive management, for a number of years, over twenty of which have been with Aon. Bellal Rahman As Senior Vice President of the Commercial Division, Bellal is currently responsible for the day to day management of a Financial Services team dedicated to serving a large portfolio of commercial insurance and reinsurance clients. Having over 18 years of industry experience, Bellal provides oversight, training and quality control in addition to maintaining client relations and resolving complex client issues. Charles Scherer Chuck joined Aon Insurance Managers (Bermuda) Ltd. as Senior Vice President, Insurance-Linked Securities. He has over nineteen years of industry experience, of which five have been with Aon. Chuck is responsible for managing and directing the services provided to large multi-national clients with complex insurance programs specializing in the Insurance-Linked Securities market including the development, structuring, licensing, and management of natural catastrophe bonds, transformers, sidecars, and life insurance securitizations. Mark Owen Mark Owen currently leads the Insurance Solutions Group in Bermuda, with responsibility for all insurance advisory and technical support to our Commercial, Captive and Insurance Linked Securities clients. Additionally, he is the global leader for Aon s Energy captive practice. Mark has 30 years insurance and risk experience, working with insurers, brokers and consultancy businesses. Seadna Kirwan As Risk Advisory Director, Séadna is responsible for implementing and enhancing Aon Bermuda s risk consulting value proposition within the Captive Management Operations. Séadna has considerable experience in developing and delivering risk management solutions to help organizations discover the full extent of risk, supporting every stage of the risk management process from strategic risk consulting to the operational execution of risk identification, risk mitigation, risk transfer, insurance optimization, risk finance solutions, risk retention and captives and related outsourcing. Aon Risk Solutions Issue

4 Cyber Risk Focus Published in the Captive Review Special Report: Bermuda 2017 Anup Seth, of Aon, discusses the company s recently implemented cyber captive program, its breadth of coverage and conception as a solution to treat cyber risk as a standalone peril. The final piece is the Cyber Risk Forum where we will invite the markets that are supporting us, clients that have bought the insurance, and claims adjusters to share knowledge. We brought these components together that culminated in the Aon Cyber Captive Program. CR: What is the current level of adoption regarding cyber insurance penetration? It s not an extension of your property or casualty policy: we now treat cyber risk as a separate standalone peril Captive Review (CR): What decisions led to the implementation of Aon s cyber captive program? Anup Seth (AS): The genesis of this solution was borne out of the findings from the Aon cyber survey that we conducted in early This survey went out to over 200 risk managers, and we reviewed the findings and looked at the common themes these proved rather startling. Coverage limitations, in particular business interruption coverage arising from physical damage, was the top concern for participants. In addition, companies that had a physicaldamage or bodily injury exposure, both first and third party, arising out of a cyber event felt that these exposures were not being addressed by the cyber policies currently available. The other interesting fact was that there was limited cyber risk assessment and only 25% of companies adhere to International Best Practices. These were the two most important findings that came out of this survey. The other recurrent themes were given that this is an emerging risk inconsistent policy forms, limited understanding of how claims would be managed following a cyber-breach and low cyber insurance penetration 60% of large companies do not buy cyber insurance. These drivers led us towards designing and implementing the Aon Cyber Captive Program that includes four key components. The first is the cyber resilience review that addresses the limited cyber risk assessment finding. This threat-based approach looks at the core assets and the key cyber threats that a company has and overlays the cybersecurity controls to assess the strength of these controls against industry best practices. We also take a scenario-based approach, asking, what if this control fails; what would this loss look like? And such a scenario is drawn out, so there is a quantitative component to the cyber resilience report as well. The second is the policy form that provides comprehensive coverage for both nonphysical and physical damage including business interruption arising from a cyber breach and is branded the Aon Cyber Enterprises Solutions form the ACES form. The third component is the risk transfer piece where we have aligned up to $400m of capacity from well-rated insurance companies that sits excess of a meaningful captive retention. There is also a pre-agreed cyber response team and panel of knowledgeable loss adjusters with a well-defined claims management process. AS: It largely depends on the industry. We found that if you look at the data holders financial institutions, healthcare companies, and retail companies they have quite a large penetration when it comes to cyber insurance. The survey found that 70% of companies that we classified as data holders were already buying some form of cyber insurance product, or had at least considered some form of cyber insurance protection. In contrast, only 17% of companies in manufacturing had done any of the aforementioned. Part of that was because they thought the physical damage nature of their cyber exposure just wasn t being addressed they hadn t even considered an insurance solution. These were critical findings around driving the design of the ACES form. Looking at the cyber exposure spectrum, you have four quadrants horizontally you have non-physical damage, and physical damage; vertically you have first-party and third party liability the challenge was to design a form that covered all four quadrants, and that s what we ve done with the ACES form. CR: What are the current biggest challenges and how is Aon positioned to respond to them? AS: The first is around understanding your cyber-security controls and their strength, gathering the necessary data and getting the right people within the organisation to come together to understand what areas require further strengthening. The cyber resilience review brings all of this info together into one succinct report. Aon Risk Solutions Issue

5 The second challenge when creating our program was in designing a solution for companies that had physical damage exposure arising out of a cyber event this led us towards treating cyber as a separate, standalone peril. I think more companies need to be thinking along these lines. It s not an extension of your property or casualty policy: we now treat cyber risk as a separate standalone peril, and hence it has its own form, and it covers those four quadrants of the cyber exposure spectrum. The third challenge was around an understanding of the claims process. Through the acquisition of Stroz Friedberg inc., we have strengthened our cyber proposition considerably, including a cyber response team. A cyber breach isn t like any other breach; you can have a cyber breach and not even know about it. Once you re aware that something might have gone wrong, it s very important that you have the right response team to go into your company, to analyse and understand what type of breach you ve had and to then respond to that breach accordingly to try to manage and mitigate the potential loss. Linked to this is the well-defined claims management process. CR: What is the ACES policy trigger and what other coverage does it afford? AS: All first-party coverage is provided on a losses occurring basis and all third-party liability is provided on a claims made basis so there is a dual trigger to the policy. In addition to property damage the ACES form provides cyber terrorism coverage, product liability coverage to address Internet of Things exposure and contingent network business interruption for IT vendors and the supply chain. We ve also extended cover for any regulatory fines and penalties where insurable and arising out of a covered event. This is particularly relevant in the EU, where next year you have the EU General Data Protection Regulation coming in, effective 25 May CR: What steps do you take in the insurance process of this programme? AS: The first step is the cyber resilience review that is conducted by the Aon Cyber Risk Consulting Practice. Once the resilience review is completed, the report goes to the client and then the client can decide whether they want to continue with the risk transfer solution, or they may find that based on the report that they d like to remediate certain elements of their cyber-security controls. Assuming they want to continue with the risk transfer, the next step is the design of the insurance program structure. This is determined by using the resilience review report and in particular the quantitative scenario-based results looking at how much capacity the company should buy and the captive retention based on the company s risk appetite. Once the insurance program structure is finalised, a dedicated broking team completes the insurance placement we have a panel of pre-agreed insurers that have agreed and committed capacity of up to $400m on the ACES form. Once the placement has been completed, we have a separate team within a company called Aon Underwriting Managers, and they are dedicated and work on behalf of the carriers. They work on matters such as issuing the policy, collecting premiums and administering any other policy endorsements that may be needed during the term of the policy. CR: What makes Aon s approach unique? AS: It s a combination of the cyber resilience review that offers both a qualitative and quantitative threat-based review, combined with the breadth of cover provided by the ACES form where all four quadrants are being protected. Finally, significant capacity provided in a timely manner on a consistent form to the insured. That is extremely valuable and is a truly unique solution in the marketplace at the moment. Aon Risk Solutions Issue

6 Captive Finality Solutions Captives and their parent groups come in a variety of different forms, from the pure captive, wholly owned by a single parent, to a group captive acting, in effect, as an industry mutual. Whatever its form and ultimate parent group, a captive can play an important role in any organisation s risk financing strategy. However, if that risk financing strategy changes or the parent group s broader strategic objectives alter, an organisation (or in the case of a group captive, its members) may find it desirable to exit from captive participation. Why consider captive closure? There are many reasons why a captive s parent group may take the decision to close its captive down: The captive has been dormant for many years, and the parent group wish to save the annual running costs associated with managing the vehicle; A wish to release cash back to the parent group on a finality basis (rather than, for example, by inter-company loan); A desire to finalise the parent group s exposure to long-tail liabilities; A concern that regulatory changes may make the captive less economically viable; Insurance market conditions are such that commercial insurers are underwriting risks at prices below the technical rate; The parent group has acquired multiple captives through M&A activity and wishes to rationalise its arrangements, generating additional efficiencies and cost savings. Members (in the case of a group captive) decide that they wish to exit from the arrangement, making the captive no longer viable. However, for whatever the reason, once the decision has been made to close the captive there are a number of routes open to the parent group: Sale of the legacy insurance liabilities to a third party (followed by a voluntary liquidation) Creation of a more efficient run off structure (utilising a protected cell structure) Sale of the captive as a going concern to a third party The implications of pursuing each strategy will vary, and the most appropriate route will change, depending on the specific circumstances of each captive and the broader objectives of each parent group. Indeed, the optimal solution may draw upon each of the options. What are the benefits? Depending on the circumstances, exiting from a captive may result in a number of benefits for the parent group: The creation of certainty of cost for the run-off of old exposures The releasing of collateral for liabilities (such as LoCs) and improved liquidity The redeployment of capital elsewhere in the parent group s business The possible realisation of a profit The elimination of annual management costs Reduction of senior management time burden at the parent group Market view With increasing market capacity and more and more carriers entering into the market, captive owners have never had as many options for selling legacy books. One risk for captive owners when considering a sale of their liabilities, is potential reputational issues arising from the sale and the associated due diligence that should be completed on the proposed buyer. Understanding the approach the buyer will take to running off the claims is key for a captive whose underlying policy holders will have some connection to the parent entity. Aon s resources Aon s resources across risk consulting, broking and captive management are closely aligned with Aon Benfield, the world s largest reinsurance broker, and its additional specialist market access. Aon Captive & Insurance Management has also created a dedicated run-off solutions practice to coordinate resources and develop best practice in this important area. White Rock, Aon s protected cell company, offers an efficient and orderly means to de-risk captive balance sheets, freeing up capital while maintaining ultimate control on the reserves. White Rock is available in a number of domiciles in Europe, onshore in the US and Bermuda which allows captive owners to choose the most appropriate domicile. Aon can deliver impartial advice on a location independent basis in order to structure the right solution and execute via its global resources. Aon Risk Solutions Issue

7 Key Contacts Anup Seth Managing Director Aon Insurance Managers (Bermuda) George Leite Executive Vice President, Head of Business Development Aon Insurance Managers (Bermuda) About Aon Aon plc (NYSE:AON) is a leading global professional services firm providing a broad range of risk, retirement and health solutions. Our 50,000 colleagues in 120 countries empower results for clients by using proprietary data and analytics to deliver insights that reduce volatility and improve performance. Aon plc All rights reserved. The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. GDM05457