BLENDED STRUCTURE Industry Manufacturing
Motivation A manufacturer of safety products believed it had adequate insurance and cash flow to cover its silica claims, but management wanted added protection in case the limits were exhausted. It generated sufficient excess profits to fund a long-term structured insurance program; being a Subchapter S corporation, it would have had to distribute all of these excess profits to share-holders. In addition, management sought to benefit from the expected favorable loss
experience.
Structure • A blended structure combining client funding and risk transfer
• Occurrence form, with no specific retroactive date, covering claims paid until limit of liability is exhausted, or policy commuted
• The company was provided the option of purchasing additional limits at a predetermined rate and subject to a maximum aggregate limit at any time within the first three years
Term Three years
Coverage(s) Silica bodily injury coverage
Limit • Initial aggregate up to $4 million with the option to purchase an additional $20 million in aggregate limits
• The policy reimburses the company for 100% of losses up to the experience balance Retention $1 million per claimant, after which the policy provides $500,000 of limit per claimant Notional Exp.
Balance
$2.8 million; $14.3 million if additional limits purchased Potential
Benefits
• Provides annual policy limits that reimburse the company for paid claims not covered by existing insurance
BLENDED STRUCTURE Industry Healthcare
Motivation A health maintenance organization (HMO) wanted a multi-year solution and potential benefits from positive loss experience while reducing frictional costs.
Structure A blended structure combining client funding and risk transfer Term Three years
Coverage(s) Claims made and reported Managed Care Errors &Omissions (E&O) Limit • $40 million per claim and annual aggregate
• Aggregate of $55 million for all claims within the policy period
• Reinstatement option provides additional $25 million in aggregate limits subject to a $15 million limit per claim
Retention $3 million per claim Notional Exp.
Balance
$25 million Potential
Benefits
• Provides multi-year coverage
• Enables the HMO to satisfy its certificate of insurance requirement • Allows the HMO to benefit from favorable loss experience
BLENDED STRUCTURE Industry Transportation
Motivation The captive of a large multinational company retained multiple classes of risk in several countries. Management of the company wished to protect the captive against unexpected adverse aggregate losses. In addition, they wanted the company to be able to benefit from its good loss experience. Structure • A blended structure combining client funding and risk transfer
• Client funding accumulated over a three year period Term Three years with an extended reporting period of 120 months
Coverage(s) Auto Liability, General Liability, Employers Liability, Rolling Stock and All Risks Property Limit • $10 million to $20 million per occurrence, depending on the country
• $40 million aggregate limit for all losses during the term
• Captive is required to purchase Mandatory Aggregate Limit if total incurred losses exceed certain predetermined thresholds; aggregate limit can increase up to $120 million in the maximum depending upon the amount of total losses incurred and limits purchased
Retention $1.5 million to $2.5 million per occurrence, depending upon the country Notional Exp.
Balance
• Function of the deposit premium less loss payments plus interest credited • Deposit premium of $30 million paid in three annual installments
• Deposit premium may increase by as much as an additional $56 million, if mandatory aggregate limits are purchased
Potential Benefits
• Provides the captive with protection for multiple classes of risks in several countries • Allows the company to benefit from favorable loss experience
• Provides the structure for increased aggregate limits, if needed
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 Three years
Coverage(s) 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 SIR of €20 million per occurrence
Notional Exp. Balance
€30 million funded over a three year period
Potential Benefits
• 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
Multi-Year Professional Liability
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. Balance
$5 million Potential
Benefits
• Enables the company to provide evidence of insurance
• Allows the company to benefit from favorable loss experience on the primary layer
Product Liability
BLENDED STRUCTURE Industry Manufacturing
Motivation A U.S. manufacturer sought coverage for products recall to satisfy the requirements of its trading counterparties. The price available in the traditional market was not acceptable to the manufacturer.
Structure A blended structure combining client funding and risk transfer Term Three years
Coverage(s) Product Recall, Coverages A (expenses) and B (liability damages) Limit $10 million per occurrence and $20 million in the aggregate
Retention $1 million per occurrence Notional Exp.
Balance
• Function of the deposit premiums (including additional deposits) less loss payments plus interest credited
• $6 million Potential
Benefits
• Meets coverage requirements for difficult to insure layers and products • Offers efficient blend of self-funding and risk transfer
• Provides significant return of premium if losses are low • Offers stable pricing over multiple years
• Allows the insured to benefit from favorable loss experience
Product Recall
American International Group, Inc. (AIG) is a leading global insurance organization serving customers in more than 100 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.
Additional information about AIG can be found at www.aig.com | YouTube: www.youtube.com/aig | Twitter: @AIGinsurance| LinkedIn: www.linkedin.com/company/aig
AIG is 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 www.aig.com. All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds. Insurance coverage is account specific and is governed by actual policy language. This presentation does not constitute an offer to sell any of the insurance coverage or other products or services described herein. 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 the benefits and risks of any proposed transaction or business relationship.
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