Alternative Vehicles for Presentation October 16 – 9:15 – 12:00 Alternative Vehicles for Financing Risk 非传统的保险形式

Financial Markets 金融市场 Once upon a time we had retail banking, commercial lending, real estate mortgages, and insurance. 从前我们有零售银行业、商业贷款、房地产抵押贷款和保险等各个金融市场。 Those days are gone. 那些日子一去不返 Financial markets are linked. 金融市场相互联系

Is it Enough? 足够吗？ With limited capital spread over multiple lines of business insurers and reinsurers lack sufficient capital to handle certain losses. 将有限资金分散于多条产品线，使得保险公司和再保险公司缺乏足够资金来应对某些损失。

Insurance Industry Balance Sheet 保险行业的资产负债表 Capital and reserves. 年度资本金及准备金 （单位：10亿美元） GAAP Statutory法定 Liquid assets流动资产 700B 700B Other assets其它资产 20B 0 Total assets总资产 720B 700B Reserves准备金 660B 660B Capital资本金 60B 40B Total 总额 720B 700B

Levels of Insurable Risk 可保风险的不同程度 Risks pose varying levels of loss: 风险可能造成不同程度损失 Catastrophic. Destroys majority of assets or unbearable financial loss. 巨灾损失：破坏绝大部分资产或造成无法承受的损失。 Critical. Destroys a major operating unit or ability to do business. 关键损失：破坏了重要的业务部门或业务能力。 Important. Causes a major decline in profits and cash flow. 重要损失：造成利润和现金流大幅下降。 Significant. Hurts but does not cripple the organization. 显著损失。对机构产生影响但不至于削弱实力。

Question 问题 What have been the largest insured losses in the world in the period from 1963 to 2014? 1963～2012年期间全球发生过哪些最大的保险损失？ Floods. 洪水 Hurricanes (typhoons). 飓风（台风） Volcanoes. 火山爆发 Earthquakes. 地震 Other. 其它

Answer 回答 1 2001 WTC Terrorist attack世贸恐怖袭击 $70 billion Rank Year Source of Loss Insured Losses 序号 年份 损失类型 保险损失 1 2001 WTC Terrorist attack世贸恐怖袭击 $70 billion 2 2005 Hurricane Katrina卡特琳娜飓风 $64 billion 3 2011 Japan Tsunami日本海啸 $62 billion 4 2012 Hurricane Sandy 飓风桑迪 $28 billion 5 1992 Hurricane Andrew 飓风安德鲁 $22 billion 6 2008 Hurricane Ike 飓风艾克 $19 billion 7 2011 Thailand Floods 泰国洪灾 $18 billion 8 1994 Northridge Earthquake 北岭地震 $17 billion 9 2005 Hurricane Wilma 飓风威尔玛 $11 billion 10 2004 Hurricane Charley飓风查理 $ 8 billion

Question 问题 What is the estimated insured loss from a terrorist attack on New York City using chemical, biological or radioactive weapons? 使用生化或放射武器对纽约进行恐怖袭击估计将造成多少保险损失？

Answer 回答 A major terrorist attack on New York City using chemical, biological or radioactive weapons could cost $778 billion in insured losses. 使用生化或放射武器对纽约进行重大恐怖袭击可能会造成7,780亿美元的保险损失。 American Academy of Actuaries, Reuters, March 29, 2006 美国保险学会，路透社，2006年3月29日

Capital Markets Risk Transfer 资本市场风险转移 Capital seeks risk and return: 资本寻求风险和回报 Accept risks others will not accept. 接受别人不接受的风险 Use financial muscle. 使用金融工具 Find creative and profitable solutions. 寻找创造性和有利可图的方案

Size of Capital Markets 资本市场的规模 Bring in the capital markets. U.S. Property Values $30 trillion Global capital markets $50 trillion Derivatives $550 trillion 带来的资本市场（2008年） 美国的财产价值 30万亿 全球资本市场 50万亿 衍生品 550万亿

How to do it? 如何进行？ Create Derivatives. This is a security whose value derives from another security or asset. 创建衍生产品。这是一种价值衍生于其它证券或资产之上的证券种类。 Sell Derivatives. Capital markets can purchase securities and share in the profits and risks of the underlying security or asset. 销售衍生产品。资本市场可以购买证券，并对它所代表的其它证券和资产分享利润、分担风险。

Terms 术语 Alternative Risk Transfer. Broad term that includes traditional insurance and insurance securitization components. 新型风险转移。含义广泛，包括传统的保险和保险证券化要素。 Catastrophe Bond. Transfer massive loss from smaller insurance markets ($billions) to larger capital markets ($trillions). 巨灾债券。将较小的保险市场（10亿美元）的重大损失风险转移到较大的资本市场（万亿美元） Reinsurance Sidecar. An agreement in a reinsurance structure. 巨灾再保险。一种再保险协议形式。

Catastrophe Bond Explained 巨灾债券 $300 million hurricane loss in Florida. 佛罗里达的3亿美元飓风损失 Insurer. 2-year Cat bond. 15% annual interest. 保险公司。期限2年、年利率15%的巨灾债券 Investors. Purchases slices. Collect interest and principal. 投资人。购买小额债券，获得利息和本金 Contingency. Hurricane causes $175 million loss. 意外事故。飓风造成1.75亿美元损失 Return. $125 million plus interest. 回报。连本带利收回1.25亿美元。

Cat Bond Triggers Aggregate from: One cause. Multiple causes. All causes. Industry loss.

Cat Bond Structure Special Purpose Reinsurance Companies (Cayman Islands, Bermuda, Ireland). Derivative structure (Calculation, index, other parameter. Crop failure (Rain) Storm (wind speed at 50 of the 150 stations)

Cat Bond Sponsors Insurers, reinsurers, corporations, and government agencies. USAA, Swiss Re, Munich Re, Liberty Mutual, Hannover Re, Allianz, and Tokio Marine Nichido. Mexico (earthquake and hurricane risk). World Bank (tropical cyclone and earthquake for 16 Caribbean countries)

More Cat Bond Sponsors Aon, BNP Paribas, Swiss Re, Marsh, Goldman Sachs, Munich Re, Barclays, Deutsche Bank, JP Morgan, Jardine Lloyd Thompson, Willis. Some of them also make secondary markets in these bonds.

Tuscaloosa Tornados Statistics 塔斯卡卢萨龙卷风 April 27, 2010 2010年4月27日 Length of Path: 81 miles.(130 km) 长度：81英里（131公里） Width: 1.5 miles. (2.4 km) 宽度：1.5英里（2.4公里） Rating: Force 4. 等级：4级 Peak Winds: 190 mph (310 km/h) 最大风速： 190英里 /310 公里/小时 Tuscaloosa Deaths: 43 people 死亡人数：43 Tuscaloosa Injuries: 1,000 受伤人数：1,000 Total Deaths: 64 people 死亡总人数：64 Total Injuries: 1,500 受伤总人数：1,500

Katrina New Orleans Statistics 卡特琳娜飓风对新奥尔良造成的损失 Highest Winds: 175 mph (280 km/h) 最大风速：175英里/280公里/小时 Strength: Category 1 or Category 2 强度：1或2级 Number of Levee Breaches: 53 决堤数量：53 Escape Routes: Two 逃生路线：2条 Hyatt Hotel Debris: Glass and beds Hyatt宾馆残骸：玻璃和床上用品 Known Deaths: 700 已知死亡人数：700 Total Deaths: Nobody knows 总死亡人数：未知

Katrina Mississippi Statistics 卡特琳娜飓风对密西西比州造成的损失 August 29, 2005 2005年8月29日 Deaths: 238 people. 死亡人数：238 Missing: 67 people. 失踪人数：67 Storm Surge: 27-foot (8.2 meter) high. 浪高：27英尺/8.2米 Inlands Surge Penetration: 6 miles (10 km). 内陆影响：6英里（10公里） Highest wind gust: 135 mph (217 km/h). 最高风速：135英里/217公里/小时 Amount of Rain: 8-10 inches (200 – 250 mm). 降雨量：8-10英寸（100-250毫米）

Property Damage 财产损失 90% of structures within half a mile of the coastline were completely destroyed. 距海岸线0.5英里内90%的建筑被完全摧毁。

Loss Reserves 赔付准备金 Liability from losses not yet paid: 未支付的损失负债： Known Losses. Claim filed and losses estimated losses. 已知损失。已申请理赔，估计赔付额。 Incurred But Not Reported (IBNR). No claim. Estimate of unreported losses. 已发生未报案损失（IBNR）。未申请理赔。估计未报告损失额。

Reserves Morgan Stanley 年准备金-摩根士丹利 Line of Business产品线 Shortfall缺口 （单位：10亿美元） General Liability 一般责任 $23 billion Workers Compensation 劳工赔偿 $ 9 billion Medical Malpractice 医疗失职 $ 5 billion Commercial Auto 商业车险 $ 4 billion Products Liability 产品责任 $ 2 billion

Reserves A.M. Best 年准备金 - A.M. Best A.M. Best reported: P/C Reserve Deficiency: $67.0 billion 财险公司准备金缺口 670亿美元 Deficiency: 包括 Asbestos/Environmental: $38.5 billion 石棉/环境 385亿美元 Other $28.5 billion 其它 285亿美元

P/C Insolvencies by Year 各年份财险公司偿付力不足比例 Year年份 Percent比例 1998 .60% 1999 .23% 2000 1.02% 2001 1.03% 2002 1.33% 2003-2014 Not much change. 基本无变化

Causes of Insolvency 偿付力不足的原因 Cause of Insolvency原因 Percent比例 Inadequate Reserving准备金不足 51% Excessive Growth增长过快 10% Catastrophe Losses巨灾损失 3% Fraud 欺诈 3% Overstated Assets 夸大资产 2% Other 其它原因 31%

Is it Enough? 足够吗？ With limited capital spread over multiple lines of business, insurers and reinsurers lack sufficient capital to handle certain losses. 由于可用于多条业务线的资金有限，保险公司和再保险公司缺乏足够的资金应对某些损失。 Without new capital, market cycles would be highly volatile. 没有新的资金，市场周期的波动性将很大。 New capital entered after 2001. 新资本在2001年以后进入。

Insurance Securitization 保险证券化 This occurs when an insurance company transfers underwriting risks to the capital markets. Elements are: 保险公司将承保风险转移给资本市场。要素包括： Tradable Security. Create a security and sell it in smaller tranches to investors. 可交易证券。创建一种证券，按较小份额卖给投资者。 Contingency. Investors agree to waive principal repayment if a contingent loss occurs. 意外事项。如果发生意外损失，投资人同意豁免偿还本金。 Interest Rate. Pay above market rates of interest to holders of the portions of the security. 利率。支付给证券持有人高于市场的利率。 Principal Repayment. Return it to investors, either periodically or at maturity. 本金偿还。定期或在期满时偿还给投资人。

Insurance Securitization Terms 保险证券化术语 Other terms to describe insurance securitization: 其它用于描述保险证券化的术语： Alternative Risk Transfer. A broad term that includes traditional insurance and insurance securitization components. 可选择的风险转移。广义术语，包括传统的保险和保险证券化要素。 Catastrophe Bond. Issued to transfer massive loss from smaller insurance markets ($billions) to larger capital markets ($trillions). 巨灾债券。将较小的保险市场（10亿美元计）的重大损失风险转移到较大的资本市场（万亿美元计） Reinsurance Sidecar. A cat bond in a reinsurance structure. 再保险“侧挂车”。一种再保险形式的巨灾债券。

Catastrophe Bond Explained 巨灾债券 Insurer fears a $300 million loss if a hurricane damages covered property in Florida. It transfers the risk to the capital markets: 保险公司担心佛罗里达的一份包含飓风损失的财险保单可能造成3亿美元的损失，因此，它将风险转移给资本市场： Insurer. Creates 2-year Cat bond with 15% annual interest. Sells it to investment banker. Invests cash received in secure assets. 保险公司。创建一个期限2年、年利率15%的巨灾债券，卖给投资银行，出售债券获得的现金收入用于投资。 Investors. Purchases slices of the bond from the investment banker. They collect interest during 2 years and receives returned principal at maturity. 投资人。从投资银行购买小额债券。2年期间获得利息，期满后收回本金。 Contingency. Hurricane causes $175 million loss to covered property. Investors get back only $125 million of principal. 意外事故。飓风给投保财产造成1.75亿美元损失。投资人仅收回1.25亿美元本金。

Actual Loss on Cat Bond 巨灾债券实际损失 For a hurricane catastrophe bond, a mild season can offer a return on investment of 25%. In the 2005 season, the Olympus Reinsurance sidecar lost its entire $650 million in capital. 对于飓风巨灾债券而言，灾害少的年份可以带来25%的投资回报。2005年，Olympus再保险损失了全部的6.5亿美元资本。

Conclusion on Insurance Securitization 保险证券化结论 Two things are true with catastrophe bonds and other insurance securities: 关于巨灾债券和其它保险证券化，有以下结论： Derivative. Profits are based upon insurance payments to protect insurers against a natural or other disaster. 衍生产品。利润取决于保险赔付，在自然灾害或其它灾难事件时保护保险公司。 Insurance. It actually is insurance. Money is available to pay losses if they occur. 保险。如果损失发生，有资金进行赔付。 Trouble. An insurer is not likely to get into trouble with Cat bonds and other insurance securities. 不利情况。巨灾债券和其它保险证券不太可能会给保险公司带来麻烦。

Captive Decisions 自保决定 Presentation October 16 – 9:15 – 12:00 Captive Decisions 自保决定

Captive Decisions 自保决定 Question: Where do they start? 问题：从哪里开始？ Answer: By following the right road to a decision. Explaining them to the CFO. 回答：选择正确的道路得出决策。向CFO进行解释。

What is a captive? 什么是自保公司？ A captive is an insurance company that provides insurance coverage to its owners. 自保公司是一家向其所有方提供保险服务的保险公司。

CFO Response CFO的反应 A captive is an insurance company that provides insurance coverage to its owners. 自保公司是一家向其所有方提供保险服务的保险公司。 So What? 那又怎样？

What do Captives do? 自保公司都做什么？ Play an important role in the insurance market. 在保险市场上扮演重要角色。 Give options to insureds. 给被保险人多一种选择。 Serve as a form of retention. 自留风险的一种形式。

CFO Response CFO的反应 What’s your point? 你是什么意思？ Captives 自保公司 Play an important role in the insurance market. 在保险市场上扮演重要角色。 Give options to insureds. 给被保险人多一种选择 Serve as a form of retention.自留风险的一种形式 What’s your point? 你是什么意思？

Why do People use Captives? 人们为什么会用自保公司？ Tailored Coverage. Meet exact needs of owner (s). 定制的保险范围。满足所有方的确切需求。 Coverage of Gaps. Fill in exclusions in other policies. 填补保险缺口。对其它保险单的除外责任进行补充。 Lower Cost of Insurance. Tax benefits and lower costs allow lower premiums. 成本更低。税收利益和较低成本可使保费降低。

CFO Response CFO的反应 Did you say lower cost? 你刚才说成本更低吗？ Tailored Coverage. Meet exact needs of owner (s). 定制的保险范围。满足所有方的确切需求。 Coverage of Gaps. Fill in exclusions in other policies. 填补保险缺口。对其它保险单的除外责任进行补充。 Lower Cost of Insurance. Tax benefits and lower costs allow lower premiums. 成本更低。税收利益和较低成本可使保费降低。 Did you say lower cost? 你刚才说成本更低吗？

Could be Lower Cost . . . 可以将成本降低 … Taxes. Lower income and other taxes. 税收。降低所得税和其它税务。 Healthcare Benefits. Reduce cost. 医保收益。降低成本。 Pension Benefits. Reduce cost. 养老金收益。降低成本。 Claims. Fewer losses. 理赔。损失赔付较少。 Adjusting. Less costly. 估损。成本较低。

CFO Response CFO的反应 Taxes. Lower? 税收。较低？ Healthcare. Reduce cost? 医保。降低成本？ Pension. Reduce cost? 养老金。降低成本？ Claims. Fewer? 理赔。较少？ Adjusting. Less costly? 估损。成本较低？ OK, but . . . 好吧，但是…

OK, but . . . 好吧，但是… What happens in a hard market? 在硬市场周期会发生什么？ What happens in a soft market? 在软市场周期会发生什么？ Who covers catastrophic risks? 巨灾风险谁来承保？ What specific coverages make sense? 应有哪些具体的保险责任？ What happens if tax position changes? 如果税务状况变化会发生什么事？ How do we work with financial markets? 如何与金融市场打交道？

OK, but . . . 好吧，但是… What happens in a hard market? 在硬市场周期会发生什么 What happens in a soft market? 在软市场周期会发生什么 Who covers catastrophic risks? 巨灾风险谁来承保？ What specific coverages make sense? 应有哪些具体的保险责任？ What happens if tax position changes? 如果税务状况变化会发生什么事？ How do we work with financial markets? 如何与金融市场打交道？ That’s what we need to discuss. 我们需要关于这些问题进行讨论。

Detour 思考 We are investing capital. 我们在投资资金。 A captive decision is more of a financial rather than insurance decision. 自保决定与其说是一个保险的决定，不如说是一个财务决定。 The captive must meet objectives in both areas. 自保公司必须同时满足两个方面的目标。 And here is where we need financial tools. 我们在这里需要使用财务工具。

We need Financial Tools that . . . 我们需要满足以下条件的财务工具 Tell a compelling story. 能吸引人 Are relevant. 相关的 Are understandable. 易理解的 Provide a foundation for further discussion. 为进一步讨论提供一个基础

Four Questions 四个问题 What is the cost of retention/insurance? 什么是自留/保险的成本？ 2. What would be the cost of a captive? 自保的成本是多少？ 3. What is the captive net present value? 自保的净现值是多少？ 4. What is the total cost of risk? 风险的总成本是什么？

Cost of Retention/Insurance? 自留/保险的成本？ Yr. 0 Yr. 1 Yr. 2 Yr. 3 Yr. 4 Losses/Adjusting损失/估损 -3500 -3500 -3500 -3500 Retention Admin自留管理费 -800 -800 -800 -800 Excess Premiums超额保费 -500 -500 -500 -500 Cash Flows现金流 -4800 -4800 -4800 -4800 Present Values现值* 8% -4594 -4237 -3905 -3599 Present Value现值 -16336 * mid-year factors年中因子 0.57 1.62 2.68 3.74

2. Cost of a Captive? (Claims 5%) 自保成本（理赔5%） Yr. 0 Yr. 1 Yr. 2 Yr. 3 Yr. 4 Invested Capital投资资本 -1200 1200 Captive Premiums自保保费 -4850 -4850 -4850 -4850 Admin with Captive 管理费用 -400 -400 -400 -400 Tax Savings 6% 税务节约 291 291 291 291 Reduced Claims 5% 减少理赔 243 243 243 243 Parent Deductible 母公司免赔额 -300 -300 -300 -300 Cash Flows现金流 -1200 -5017 -5017 -5017 -3817 Present Values现值 8% -1200 -4801 -4428 -4082 -2862 Present Value现值 -17373

3. Captive Net Present Value? 自保净现值 Yr. 0 Yr. 1 Yr. 2 Yr. 3 Yr. 4 Invested Capital投资资本 -1200 1200 Captive Premiums自保保费 4850 4850 4850 4850 Losses/Adjusting损失/估损 -3500 -3500 -3500 -3500 Parent Deductible母公司免赔额 300 300 300 300 Captive Admin 管理费用 -600 -600 -600 -600 Excess Premiums 超额保费 -500 -500 -500 -500 Cash Flows现金流 -1200 550 550 550 1750 Present Values现值 8% -1200 526 486 447 1312 Net Present Value净现值 1572 Internal Rate of Rtn 56% 内部收益率

4. Total Cost of Risk? 风险总成本 Reduce Claims 5% 减少理赔 Cost of Retention自留成本 -16336 Cost of Captive 自保成本 -17373 NPV of Captive 自保的净现值 1572 Net Cost of Captive 自保净成本 -15801 Difference 差额 535

4. Total Cost of Risk? 风险总成本 理赔Claims 5% 理赔Claims 15% Cost of Retention自留成本 -16336 -16336 Cost of Captive自保成本 -17373 -15723 NPV of Captive自保净现值 1572 1572 Net Cost of Captive净成本 -15801 -14151 Difference 差额 535 2185

Now we are Ready to Discuss . . . 现在我们准备好讨论以下问题了… What happens in a hard market? 在硬市场周期会发生什么？ What happens in a soft market? 在软市场周期会发生什么？ Who covers catastrophic risks? 巨灾风险谁来承保？ What specific coverages make sense? 应有哪些具体的保险责任？ What happens if tax position changes? 如果税务状况变化会发生什么事？ How do we work with financial markets? 如何与金融市场打交道？

Other Questions 其它问题 We can also discuss 我们还能讨论 Is the cost forecast realistic? 成本预测是否现实？ Who absorbs larger than expected losses? 谁来吸收超出预期的损失？ Everything else. 其它问题

We can examine . . . 我们可以检查… Would a captive help us make better decisions on the risk we retain? 自保能否帮我们在自留风险上作出更好选择？ Can a captive provide us valuable benefits? 自保能否为我们带来收益？ Would a captive be right for us? 自保是否适合我们？

Added Captive Materials Risk Management, not Insurance, perspective.

Categories of Captives Four Categories are: Pure Captive. Insures a parent company and its affiliates. Broad Captive. Insurance for a parent and other companies. Association Captive. Insures a group of companies, frequently in same line of business. Fronting Captive. An admitted insurer that writes policies in a jurisdiction but immediately reinsures with another insurer.

Question Identify each of the following by the nature of the captive: Amico Insurance. Operates in Belgium and has zero retention of risks that it insures. Caravan Insurance. Provides coverage only to Sterling Corporation and its worldwide subsidiaries. Sterling Insurance. Provides insurance for colleges and universities that are members of the American Council on Education. Volta Insurance. A Bermuda company that has 85% of its premium volume from a Toronto corporation and the remainder from 16 smaller companies.

Answer Identify each of the following by the nature of the captive: Amico Insurance. A fronting captive. Caravan Insurance. A pure captive. Sterling Insurance. An association captive. Volta Insurance. A broad captive.

Categories of Loss Expected Business Risk (EBR). EBR covers the forecasted losses of customers and markets as a result of operational problems. It also covers hazards with low severity and high frequency, such as accidents and theft. Catastrophic Occurrence Risk (COR). These are unexpected, low frequency, and high severity losses.

Captives and Expected Business Risks Expected business risks can be accepted by a captive up to a point:  These risks can be expressed as costs: They are known. They vary, often in random patterns, each year. They can be benchmarked to industry averages. They can be financed as part of the budget.

Captives and Catastrophic Risks Catastrophic occurrence risks can be partially accepted by a captive:   These risks are not ordinary costs. They are occasionally expected but not specifically known. They include natural disasters. They include financial disasters. They include manmade disasters.

Appetite for Risk This is the level of exposure an organization is willing to take in the face of potential loss. Captives are formed in the framework of the organization’s appetite for risk, specifically:  Risk Tolerance. The willingness to accept risk. Risk Versus Cost. The trade off between spending money to avoid losses or accepting a certain level of losses.

Captive Decision with a Group Long-term commitment (at least 5 years) Adequate capitalization. Selective participation (Example: no companies with bad loss experience. True risk sharing. Understanding of profit sharing. Mechanism for withdrawal.