Steve McElhiney President EWI Risk Services 5400 LBJ Freeway, Suite 1060 Dallas, Texas 75240 (972) 560-0675 Captive Concepts www.ewirisk.com
Why a Captive? <ul><li>A captive insurance company is owned by its policyholders and insures risks of parent, subsidiaries and majority or minority-owned portfolio companies </li></ul><ul><li>Premiums are based on the experience of the members, not overall industry rates </li></ul><ul><li>Eliminates insurance company overhead </li></ul><ul><li>Offers potential for lower, more stable premiums </li></ul><ul><li>Realizes investment income on premium and capital contributions (CAGR of 15% or more is possible over 10+ year time) </li></ul><ul><li>Allows “manuscripted” policy of insurance (coverage enhancements) & significantly reduces coverage disputes </li></ul><ul><li>Allows direct access to international reinsurance markets (lower costs and greater risk appetite) </li></ul>
Captive Formation Process <ul><li>Either an onshore or an offshore domicile is permissible. EWI is focused primarily on onshore formations or Cayman & Bermuda offshore formations </li></ul><ul><li>Captive Feasibility Study – the formal business plan for the captive project (conducted – by EWI) </li></ul><ul><li>Captive Actuarial Analysis – formal evaluation of losses and exposures to evaluate the probability of loss </li></ul><ul><li>Application – the formal application to form the entity with the domicile Includes Articles of Incorporation; Shareholder Agreements; Board members; Reinsurance indications; etc. </li></ul><ul><li>License Granted – generally conducted within 30 to 45 days of application filing. </li></ul><ul><li>Capital Infusion </li></ul><ul><li>Reinsurance Negotiations & Placement </li></ul>
Captive Structure – Single Parent or Segregated Cell Solution International Reinsurers (Efficient Reinsurance Aggregation as Alternative To Inefficient Standard Market) Risk Transfer Cash Flows Parent Company Publicly-Traded or Privately-Held Single Parent Captive Ins. Co. Use of Domestic & Foreign Reinsurers Master Insurance Policy P&C Manuscripted Terms & Conditions Operating Company Insurable Property & Casualty Risk Parent Company Core Cell Captive Insurance Company Master Insurance Policy P&C Manuscripted Terms & Conditions Segregated Cell “ A” The “single cell” structure provides flexibility for members. Dividends To Parent Segregated Cell “ B” Segregated Cell “ C”
Potential Issues: <ul><li>Single parent or an association captive? Scope of entities to include (DFW or Texas)? </li></ul><ul><li>Coverages to be provided and related limits </li></ul><ul><li>Determine the need for “A” rated property insurance (often required by lenders) </li></ul><ul><li>Growth over time (new associations, states, etc.) </li></ul><ul><li>Current coverages in place, carriers, and loss experience </li></ul><ul><li>Capital investment – size, timing, etc. </li></ul>
Captive Success Stories <ul><li>Associated Electric & Gas Insurance Services Ltd. (AEGIS) Established member-owned captive/ Risk Retention Purchasing Group in 1975. Annual GWP is $1B+ </li></ul><ul><li>UPS Corporation – establishes captive, OPL, in 1983 with $50MM in capital to primarily insure their own shipping risks. By 2000, the capital accreted to over $1.5 billion (notwithstanding dividends). This represents monies that would have been spent on traditional insurance coverage. </li></ul><ul><li>Sears – forms Allstate in 1945 and provides parent company coverage, along with third party insureds. </li></ul><ul><li>Tall Pines Insurance – a VT captive formed 25 years ago </li></ul><ul><li>Capital stands at $9.0MM; Enhanced coverage provided over time. </li></ul><ul><li>ACE USA – Captive for Marsh (formed 1986) </li></ul><ul><li>Universities and not-for-profits – special coverages provided at superior rates. </li></ul>
<ul><li>Steve McElhiney, CPCU – President </li></ul><ul><li>Steve McElhiney is the president of both EWI and the Tall Pines Insurance Company (VT), a captive insurance company. His insurance industry experience spans over two decades with several leading insurance groups. Steve’s background in corporate finance and reinsurance provides a unique insight into the recent convergence of the capital and reinsurance markets. </li></ul><ul><li>Prior to joining EWI Risk Services, Steve served as: </li></ul><ul><ul><li>Corporate Treasurer of Argonaut Group </li></ul></ul><ul><ul><li>Chief Financial Officer of Overseas Partners US Re </li></ul></ul><ul><ul><li>Senior Vice President, Reinsurance of TIG Insurance </li></ul></ul><ul><ul><li>Associate Director of Reinsurance of Fireman’s Fund </li></ul></ul><ul><li>Nicholas P. Roberto – Senior Vice President </li></ul><ul><li>Nick Roberto is a Senior Vice President at EWI specializing in the production and broking of treaty and facultative reinsurance. Nick has enjoyed a career in the reinsurance industry that spans over 30 years. These years of experience, exclusively in the field of reinsurance, has given him significant experience and an indispensible knowledge base that he brings to bear in assisting clients with the structuring of reinsurance programs and in broking those programs. He began his reinsurance career in 1978 as a Treaty Underwriter at Continental Reinsurance Co. in New York. Thereafter, Nick expanded his reinsurance experience at reinsurance intermediaries located in New York, Dallas, and Overland Park, Kansas, including serving as an assistant vice president at Intere Intermediaries, Inc. and Bell Nicholson Henderson, and as a vice president at Bates Turner/Employers Re. Most recently, Nick joins EWI, after a 9-year career at Aon Benfield, where he was responsible for the opening of the Benfield office in Dallas </li></ul><ul><li>Jorge Cardona, C.P.A – Senior Vice-President </li></ul><ul><li>Jorge Cardona is a Senior Vice President with EWI. His experience in the insurance industry, in both the insurance and reinsurance brokerage arenas, spans over two decades. Jorge has been with EWI since 1988 and during this time he has overseen various facets of EWI’s operations, including Accounting, Finance, Information Systems and Operations. Prior to joining EWI Risk Services, Jorge served as Assistant Controller, Financial Security Assurance, Inc. – statutory, GAAP and SEC reporting and as Assistant Controller, Mutual of America Life Insurance Company – statutory and GAAP reporting. Jorge’s background in insurance company financial reporting, both on a statutory and GAAP basis and his reinsurance expertise, provides clients with a valuable skill set in the analysis and design of customized reinsurance structures. Jorge earned a B.B.A. degree, with honors, from Bernard M. Baruch College, City University of New York. Jorge is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants </li></ul><ul><li>Glenn Peterson, CPCU, CRM, ARM, CIC – Senior Vice President, Risk Management </li></ul><ul><li>Glenn serves as Senior Vice President of Risk Management for EWI. He works with client organizations to develop, implement and manage strategies to reduce the frequency and severity of loss. Prior to joining EWI in 2004, Glenn was Director of Risk Management for DHL Express, the world’s largest express and logistics organization. He was responsible for risk management, loss control, insurance and bonds, claims supervision, and contract issues for North and South America. Prior engagements include serving in executive risk management for Sunbeam Corporation, Greenhill Petroleum Corporation, and Western Mining Corporation. </li></ul><ul><li>Lynn Sheils, J.D. – Senior Vice President & General Counsel </li></ul><ul><li>Lynn Sheils serves as General Counsel to EWI where she has oversight of EWI legal matters. In addition, Lynn is responsible for the administration of client organization’s reinsurance contracts and insurance policies to help advocate for most optimal wordings available. Lynn also has oversight of client claims and can assist in claims reporting, claims collection issues, and can help serve as an advocate in coverage controversies. Prior to joining EWI in 2005, Lynn was a litigator in private practice in Texas. Most recently, she was a shareholder in the Dallas office of Cooper & Scully, P.C. At Cooper & Scully she analyzed and handled complex insurance coverage matters, representing both insurers and insureds, and was of among a relatively small number of attorneys with the ability to represent reinsurers. Aside from her insurance and reinsurance coverage work, Lynn has litigation experience representing insurance companies, claims managers and self-insured companies. </li></ul>EWI Captive Team
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