1. www.bermudacaptive.bm JUN 2 - 4, 2014 Employee Benefits A spectrum of opinion

2. Employee Benefits a Spectrum of Opinion Moderator: • Brian Quinn, Managing Director, Granite Management Speakers: • Jim Long, VP Client Relationships, Maxis • Paul Sprague, Director Chemical Ins. Co. Ltd., a BASF Company • Diane Nendick, Global Benefits Manager, Microsoft • George O’Donnell, Technical Director, Aon

3. Employers that have used captives for U.S. EB • Currently 21 companies have received approval from the U.S. DoL • Many more pending • Regulations tightening

4. Insured EB Funding Mechanisms Least Financially Efficient Most Financially Efficient Fully Insured Self Insured Stop Loss Captive Reinsurance Multinational Pooling

5. Maxis Network A Fronting Insurer’s Perspective

6. Fronting Insurers Issues • Implementation: Company and fronting insurer key issues • Situs: Solvency 2/FATCA/other issues • Coverage's: Life/LTD/Medical/Voluntary/Stop Loss • New Horizons: DB buyouts, Ret Med, PCC’s for smaller groups • Success? How to define in years 1 -5?

7. Fronting Insurers Issues • Expenses: Local fronting & Central coordination charges • Collateral: Cost of capital/reserve relief • Limits on ceded risk: Government imposed or insurer ‘rules’ • Structure: AP in advance/Quarterly in arrears/Other? • Risk Management: Stop Loss and Cat Re?

8. BASF Case Study A Risk Manager’s Perspective

9. BASF Case Study (Cont’d) • US Benefit Risks – How BASF May Involve the Captive • BASF will postpone utilizing captive for ERISA-regulated benefits • Reason: ERISA & DOL impose significant requirements, e.g.: • DOL exemption • Prohibition against commissions • Independent fiduciary to review and monitor the arrangement • Time and cost to administer • Major area of initial focus: Medical Stop Loss • Indemnifies the employer, not employees • DOL does not consider Medical Stop Loss an “employee benefit”

10. BASF Case Study (Cont’d) • Rationale for Medical Stop Loss + Captive • Exposure to “catastrophic” medical claims has increased with the Patient Protection and Affordable Care Act (“Obamacare”) • Elimination of liability caps for plans • Increased availability of health coverage will accelerate trend for large claims • Although BASF can absorb health benefit risk, BASF desires to establish formal risk funding mechanism • BASF already owns the risk so Medical Stop Loss will dampen year over year volatility rather than reduce costs • Including Medical Stop Loss with uncorrelated P&C risks can smooth the captive financial results over long term

11. BASF Case Study (Cont’d) • Strategy for non-US Insurable Employee Benefits • The company is conducting a feasibility study to involve Bermuda captive • Goal is to replace “out of date” pooling arrangements with more efficient captive program • Operational advantages may include streamlining of the administrative process, greater oversight of loss analysis and risk mitigation practices • Financial advantages may include cost of financing employee benefits, and cash flow • Employee advantages may include security of highly rated partners, competitive premiums and plan designs

12. Microsoft Case Study A Human Resource Manager’s Perspective

13. Reasons for change • Background: • Microsoft promoted multinational pooling to international subsidiaries to optimize their international benefits spend • We had three preferred pooling networks (Generali, Insurope and IGP) • Pool performance had been very strong the last few years; however, we believed there were additional cost savings and advantages to using a captive • Captive arrangement existed for some US Benefits • Advantages we identified for using a captive: • Local subsidiary should make significant further savings on international benefits spend (remove insurer profits and reduce need for broker) • Improved corporate governance, visibility and centralized control of benefit pricing and plan design • Potential to earn greater investment income by captive on premiums and reserves that are held by captive • Diversifies the risk of our existing captives and supports corporate initiative to move toward captive-centric framework • Increases captive leverage with reinsurance market

14. Key Principles for Change Key Principles: • Financial Savings • Subsidiary - cost savings immediately realized fully by subsidiary in terms of upfront premium reduction • Corporate – optimize international benefit spend for subsidiaries and potentially realize other efficiencies (investment income, diversified risk, and leverage in reinsurance markets) • Plan Design • No change to plan design or coverage level • Terms and conditions are equal to or better than previous local insurance contracts • Move all insured Life, Disability and Accident policies into captive where legally permissible • Encourage insured Medical policies to captive (not mandated) • Retirement plans will not be considered for captive • Administration • Local insurer is strong in local market and provides quality service and administration • No increase for ongoing administrative efforts by local subsidiaries Scope: • Local provider (if coverage not currently by captive provider) • Terms and conditions equal to or better • Role of local broker Out of Scope: • Changes to plan design or coverage level • Local subsidiary continues to manage relationship with local provider

15. Year 1 Year 2 Year 3 How we made the change Cross functional Steering Committee Joint Executive Sponsors Joint Business Owners Project Core Team: Business Risk Management Global Benefits Captive Manager Implementation Plan • Non-pooled countries Life, Accident and Disability policies moved to captive arrangement • Medical policies moved opportunistically • Other pooled Life, Accident and Disability policies moved to captive arrangement • Medical policies moved opportunistically • Generali existing pool converted to full captive arrangement • Medical policies moved opportunistically Success measurement • Incremental savings over 3 years (actual saving less pre captive average cumulative pooling dividend) • Individual subsidiary savings range in terms of % rate reduction • Migrated subsidiaries respond 70% favorable to captive project

16. Results Results (75 “countries” migrated to captive) • “Incremental savings over 3 years (actual saving less pre captive average cumulative pooling)” Achieved: Incremental savings almost double our expectation • “Individual subsidiary savings range in terms of % rate reduction” Achieved: Minimum individual saving within 1% Maximum individual saving almost double our expectation • “Migrated subsidiaries respond 70% favorable to captive project” Achieved: 95% favorable

17. A Consultants experience

18. US Captive Benefits Landscape in 2014 • Healthcare Restructuring • US healthcare sector = 15% of US economy • Profound healthcare restructuring is underway • Major drivers: • Patient Protection and Affordable Care Act (“Obamacare”) • Global economic pressures – US health costs are (way!) out of line with US’ trading partners • Emphasis on “Accountable Care”

19. US Captive Benefits Landscape in 2014 (Cont’d) • US Healthcare and Employers: • No caps on employer health plan liability • Employers have to re-think risk management for health benefits • Shifting organizational responsibilities within employers – greater role for Risk Management in managing health risk • Increasing recognition of captive’s role • Increasingly sophisticated reinsurance markets for captive health programs • Rev Rul 2014-15 may create new opportunities

20. US Captive Benefits Landscape in 2014 (Cont’d) • US Healthcare and Health Providers • New applications for captives: • Provider Risk under Accountable Care risk-sharing contracts • Participation in health plans marketed by insurance carriers • Medical Stop Loss for the provider’s employees • New applications complement traditional applications involving Professional Liability • Rev Rul 2014-15 may impact non-profit organizations

21. US Captive Benefits Landscape in 2014 (Cont’d) • EXPRO (Dept. of Labor Approvals) • Advance DOL approval generally required for Life, Long-Term Disability (“LTD”), Accidental Death & Disability (“AD&D”) • Previous expedited review & approval process known as “EXPRO” • About 30 captive arrangements were approved under EXPRO • EXPRO expired by 2012

22. US Captive Benefits Landscape in 2014 (Cont’d) • Since 2012, Coca-Cola and Intel have obtained individual (non-EXPRO) exemptions from the DOL • At least two other individual exemption applications have been submitted to the DOL • Others are “in the pipeline” • It appears likely that the next DOL approval will be granted under EXPRO

23. US Captive Benefits Landscape in 2014 (Cont’d) • Summary • 2014 will be a pivotal year for US captive benefits programs • Utilization of captives by employers for health benefits • Utilization of captives by health providers • New tax guidance • EXPRO reinstated