1. #ACIInsurance ACI’s 3 rd Advanced Forum on Captive Insurance Brian Johnson Managing Principal Bartlett Actuarial Group Phone: (843) 377-0993 brianj@bartlettactuarialgroup.com State of the Captive Insurance Market For Middle Market Companies Tom Stewart President Innovative Captive Strategies Phone: (515) 223-6852 tstewart@yourcaptive.com Jeffrey K. Simpson Director Gordon, Fournaris & Mammarella, P.A. Phone: (302) 652-2900 jsimpson@gfmlaw.com April 23-24, 2015 Tweeting about this conference? 1

2. #ACIInsurance State of the Captive Market The needs of the small/middle market, the latest in coverage, claims and underwriting, and a look ahead at some of the novel risks that aren’t insured and that can potentially be funded by a captive. 2

3. #ACIInsurance State of the Captive Market Fairly Soft Market Some Market Swings for Certain Classes Lack of Availability of Self-Insurance Options Strong Performers not Rewarded Captive Interest is Strong 3

4. #ACIInsurance State of Market Middle Market Captive Activity Goals Reduce Cost of Insurance Cover Risks Not Typically Insured Medical Stop-Loss Unique Arrangements 4

5. #ACIInsurance State of Market Middle Market Captive Activity GoalsStructure Reduce Cost of InsuranceMember-Owned Group Risk Retention Group Cover Risks Not Typically CoveredEnterprise Risk Captive -Pure -Protected Cell -Series LLC Medical Stop LossMember Owned Group Sponsored Vehicle Unique ArrangementsRental Captive Agency Captive Association Captive 5

6. #ACIInsurance State of Market Middle Market Captive Activity GoalsStructureRisks Reduce Cost of Insurance Member-Owned Group Risk Retention Group AL, GL, WC Professional Liability, Specialty liability Cover Risks Not Typically Covered Enterprise Risk Captive -Pure -Protected Cell -Series LLC Deductible & Exclusion Business Interruption Loss of Income Medical Stop LossMember Owned Group Sponsored Vehicle Employer funding obligations to self- insured plan Unique ArrangementsRental Captive Agency Captive Association Captive Business or industry specialty exposures 6

7. #ACIInsurance Number of Captives Worldwide 84%Single Parent 8% Group Captives 4% Risk Retention Group 3% Protected Cell 1% Other Source: Captive Insurance Company directory, through calendar year 2013 May 2013 (Marsh Risk Management) 7

8. #ACIInsurance Ideal Candidate Entrepreneurial Spirit Desire to Take Control Commitment to Loss Control and Safety Improvement Financially Secure 8

9. #ACIInsurance Needs of the Market What problems have middle market captive owners historically been trying to solve? Reduce Cost Pricing Stability Increased Control Quality of Service Fund uninsured exposures Manage unique business on industry - related exposures What problems are emerging for the middle- market that a captive could solve? 9

10. #ACIInsurance The Latest in Coverages, Claims and Underwriting Coverages Traditional insurance coverages Ability to increase retentions Excess coverages Difference in Conditions coverage Enterprise Risk Management Coverages Low frequency / high severity Generally unavailable in commercial market Examples: Cyber Liability, Supply Chain Interruption 10

11. #ACIInsurance The Latest in Coverages, Claims and Underwriting Claims ERM claims occurring more frequently Awareness True emergence of unknown risks The establishment of insurance companies specifically designed to cover these risks is raising awareness of these risks 11

12. #ACIInsurance The Latest in Coverages, Claims and Underwriting Underwriting Models have been developed to quantify the risk Every occurrence becomes a new data point Data can be gathered from numerous sources, but not yet one centralized repository 12

13. #ACIInsurance Influence of ERM on middle-market underwriting risk identification and coverage decisions 13

14. #ACIInsurance Novel Risks That Aren’t Insured and that Can Potentially Be Funded by a Captive Cyber Liability Supplier/Supply Chain Interruption Reputational Risk Contingent Business Interruption Business Interruption from outside, uncontrollable sources Loss of Key Employees or Key Customers Deductibles/Excess/Difference in Conditions 14

15. #ACIInsurance Cultural shift to cover these exposures and make claims. Business processes not currently built for it. 15

16. #ACIInsurance Everyone starting to adjust for experience 16

17. #ACIInsurance Questions and Answers 17