Olde Mill Inn Basking Ridge, NJ

1. Captive Insurance Group of New Jersey Fall Event – October 2015 Olde Mill Inn Basking Ridge, NJ Diversifying Your Captive

2. Speaker Panel • Introductions and Foundation – • Chris Mandel, SVP Strategic Solutions, Sedgwick, Inc. • Saddlebrook Insurance Case Study – Migrating Benefit Risk • Howard Edelstein, Global Director, RskMgmt, Sealed Air Corp • HCSG Insurance Case Study • Andy Kush, SVP Human Resources & Risk Management, Healthcare Services Group, Inc. • Using Captives to Cover Emerging Risks • Paul Johnson, Verizon Corp (retired)

3. Key components of strategic captive management

4. The spectrum of risk sources

5. Emerging risks • RIMS: Those issues hat have not manifested themselves sufficiently to be managed using the tools commonly applied to more developed exposures. They are “those risks an organization has not yet recognized or those which are known to exist, but are not well understood. • PWC: Those large scale events or circumstances beyond one’s direct capacity to control, that impact in ways difficult to imagine today. • S&P: Risks that do not currently exist. What about blackswans?

6. Will your domicile allow for risks that matter most?

7. Choosing your risk range focus FREQUENCY/LIKELIHOOD SEVERITY/IMPACT

8. Is risk process different for captives? • Captive Enterprise/Strategic Risk Management The strategic process of assessing and responding to the collective risks that impact the ability of the captive and its parent to maximize stakeholder value. • Risks in Captives: • Product recall • Regulatory sanctions • Supply Chain • Benefits • Cyber/Social Media • Political • Financial fraud • Pandemic

9. Saddle Brook Insurance CompanyA Case Study Global Director, Risk ManagementHoward Edelstein

10. Sealed Air Corporation • Worldwide manufacturer of food and protective packaging products and industrial hygienic products and solutions • Projected 2015 sales: $8 Billion (35% US, 65% Rest of World) • Operations in 70 countries, sales into 120 countries • 140 manufacturing facilities • 25,000 employees (8,000 in the US)

11. Saddle Brook Insurance Company • SBIC is a wholly owned subsidiary of Sealed Air Corporation • SBIC is domiciled in Vermont, USA • SBIC operates as both a direct writer and as a reinsurer • Formed in 2004 to write a corporate reimbursement (deductible) property policy

12. SBIC: A history of growth • 2004 Global Property Insurance • 2005 US Workers Compensation • 2007 US Auto and GL/Products • 2008 US Cargo/Goods in Transit • 2009 Household Goods • 2010 International GL/Products • 2011 Products Recall

13. SBIC – The growth continues • 2013 Emergency Medical Evacuation • 2014 Directors & Officers Liability • 2015 European Auto Insurance • 2015 US Life and AD&D • 2016 + More Good Stuff

14. The money shot

15. Why benefits? • Certain employee benefit coverage can be viewed as "unrelated business" • Adding unrelated business to an existing P&C captive can (1) improve the captive's overall financial efficiency, (2) create additional streams of profitable business, and (3) generate real cost savings for the company

16. Why now, why at Sealed Air? • CONTEXT: Part of a corporate “Get Fit” and “Change the Game” strategy to examine business practices and material spends - nothing was off limits • The success of SBIC for traditional property and casualty risks helped to influence our corporate risk appetite • The benefits of Alternative Risk Financing were no longer anecdotal or theoretical • Global Life and AD&D insurance spending was significant and “market cycle dependent

17. The ‘why’ continued • A deep dive examination of how we financedthe risk of Life & AD&D was determined to be necessary, rather than an examination of how we purchased insurance. This critical distinction became the driving force of the project • We determined to test the waters for our US exposure rather than going global

18. Lessons learned: A cautionary tale • Don’t begin the process with a pre-conceived end game: everyone involved needs to park their personal “prejudices” at the door • This is a team effort: choose wisely from multiple corporate disciplines • It’s a long term play: buyers v. Shoppers. • The past is the past: this is a forward looking project - no finger pointing, no blame • Focus on the bigger picture, stay out of the weeds as long as you can • Project consultancy: choose wisely

19. More lessons learned • Go or No Go (CRITICAL) • Be realistic in setting time frames • The Dept. of Labor is the final underwriter: no relationship buying/selling involved • 88 days of silence… then Boom • Work doesn’t stop with final approval

20. Leveraging captives to migrate employee benefit riskhealthcare services group, inc.Andy Kush

21. HCSG Insurance Corp • Background • Formed in 2014 to insure General Liability risk (SIR) • QT 2 - 2015 • Issued Deductible Liability policy – Workers’ Compensation • Issued Loss Portfolio Transfer Agreement – Workers’ Compensation • Approval to reinsure Voluntary Benefits • Voluntary Benefits Objective • Provide a cost-effective, stable benefit option to HCSG site-level employees • Mitigate the risk of both regulatory and increased premium cost associated with PPACA (Employer Mandate, Exchange Mandate, rising premiums)

22. HCSG Insurance Corp – Voluntary benefits • Benefit reinsurance selection criteria: • Fully-insured • Voluntary in nature • Stable premiums • Short exposure tails • Acceptable loss ratios • Three coverages met most criteria: • Limited Medical Plan – indemnity based (not compliant with PPACA on a standalone basis, but coupled with an additional option, an affordable option for employees to avoid the individual mandate) • Short Term Disability • Term Life

23. HCSG Insurance Corp – Voluntary benefits • Additional considerations: • Friendly domicile – New Jersey • ERISA-governed plans – required Department of Labor approval • First organization to receive approval through the DOL’s revised ExPro (Expedited Process) program • 90-day process: organizations applying must be able to demonstrate an approval precedent • Independent Fiduciary review • Voluntary Benefit fronting carrier – very limited market • Enrollment company • Creating the right mix of benefit offerings to make the program economically feasible for enollers • 4,000+ locations and small enrollment period significantly limits the market • Third Party Administrator • Internal process compliance • Noticing employees • Transitioning employees in the prescribed DOL timeframe (90 days post-approval) • Ensuring accurate deductions, premium and claim payments

24. Use of captives with emerging risks A risk manager’s perspectiveVerizonPaul Johnson

25. Traditional users of captives • Primary function: • Formalized risk retention • Cost efficient structure for self-insuring risks • Captive Benefits: • Reduces cost of risk • Provides better access to insurance markets • Reduces volatility to BU insurance budgets

26. Fortune 100 • Sophisticated users typically retain about 75% of insurance expenditures: • Largest portion being AL, GL, WC • Property buy down • Balance of insurance spend transferred to 3rd parties to cover catastrophic risks

27. Inconsequential losses • Motivates BUs to minimize losses Retain Risk Identify & Quantify Risks Typical decision making process • Predictable, high frequency risks (e.g. AL & WC) • Difficult to insure risks (e.g. patent infringement) • Alternative to hard commercial markets (e.g. property insurance) • Possible profit center • Management • Risk Management • Internal Clients • Legal Business Units • Consultants • Brokers • Third Party Administrators • Actuaries • Financial Intermediaries • Unpredictable, catastrophic losses (e.g. hurricanes) Captive(s) Transfer Risk 3rd Party Insurers

28. Sophisticated users of captives • Will consider additional coverages: • Affinity programs • Supplemental Life and Medical programs • Product Protection Programs • Cyber, NBCR, etc. • Benefits: • Tax efficiency • Addresses risk not insurable by 3rd parties • Profit • Improve Customer satisfaction

29. Considerations • Consistent with risk profile? • Risks “toxic?” • Counter parties solvent? Collateral requirements reasonable? • “Related Unrelated” • Is the captive balance sheet big enough to absorb exposure? • Does captive management add any value to existing risk exposure? • Access to reinsurance? • Tax benefits? • Profit?

30. Considerations • Is the risk predictable? Can the exposure be quantified to derive a reasonable premium? • Has this program ever been executed before? • Can the captive account for the risk in an time sensitive, efficient manner? • Counter-party internal controls adequate? SSAE-16? • Frequency and timing of cession statements? • How would program affect external audits?

31. Thank you QUESTIONS?

32. Speaker Contact Information • Chris Mandel, SVP Strategic Solutions, Sedgwick, Inc. • Chris.mandel@sedgwick.com • Howard Edelstein, Global Director, RskMgmt, Sealed Air Corp • Howard.Edelstein@sealedair.com • Andy Kush, SVP Human Resources & Risk Management, Healthcare Services Group, Inc. • akush@hcsc.com • Paul Johnson, Verizon Corp (retired)