1. Page 1 Recording of this session via any media type is strictly prohibited. Page 1 The Changing Face of Product Recall Insurance

2. Page 2 Recording of this session via any media type is strictly prohibited. Florian Beerli, SVP Product Recall, ACE Florian has 20+ years of insurance industry experience in crisis management, with 12 of those years focused on Product Recall. Florian is considered a global specialist in the Product Recall space. Gary Nesbit, Director of Risk & Insurance Management, Advance Auto Parts Gary has held various risk management positions at Belk Inc., Kohl’s’, Buffets Inc. and the St. Paul Insurance Co. Mr. Nesbit’s risk management teams have been recognized nationally by Risk & Insurance magazine, National Underwriter magazine, the Association for Financial Professionals, and other risk management organizations for developing and implementing the best in class risk management programs.

3. Page 3 Recording of this session via any media type is strictly prohibited. What to expect today Understand product recall insurance and how it can help your company Become familiar with the legal and statutory requirements for reporting safety issues Learn how to calculate limits and self-insured retention strategies that meet your company’s needs

4. Page 4 Recording of this session via any media type is strictly prohibited. Can a product recall happen to my company?

5. Page 5 Recording of this session via any media type is strictly prohibited. 4,075 439 632 FDA 1 CPSC 2 NHTSA 3 2012: 2009: 2,781 465 571 It happens more than you think! + 46% -6% +10%

6. Page 6 Recording of this session via any media type is strictly prohibited. Why do recalls happen?

7. Page 7 Recording of this session via any media type is strictly prohibited. Factors / reasons why recalls are occurring Design flaw Global supply chain Stricter product safety rules and regulations Manufacturing defect Human element

8. Page 8 Recording of this session via any media type is strictly prohibited. Global Supply Chain 4

9. Page 9 Recording of this session via any media type is strictly prohibited. How do you manage your suppliers? Supplier qualification procedures Preventative & predictive maintenance protocols Insurance requirements Process change protocols Scope of contract in place with suppliers Product testing

10. Page 10 Recording of this session via any media type is strictly prohibited. How do you manage your suppliers? Evaluation of suppliers Supplier / Vendor Approval Program? Contracts in place Hold Harmless / Right of Subrogation? Insurance requirements for suppliers Liability Insurance? Product Recall Insurance?

11. Page 11 Recording of this session via any media type is strictly prohibited. US Product Safety Rules and Regulations FDA Food Safety Modernization Act Consumer Product Safety Act (CPSA) The Bioterrorism Act of 2002 Consumer Product Safety Improvement Act (CPSIA) Food Drug & Cosmetic Act (FD&C Act) H.R. 2715: Updates to CPSIA

12. Page 12 Recording of this session via any media type is strictly prohibited. US Product Safety Rules and Regulations Transportation Recall Enhancement, Accountability and Documentation Act National Traffic and Motor Vehicle Safety Act Federal Hazardous Substances Act (FHSA)

13. Page 13 Recording of this session via any media type is strictly prohibited. What is the financial impact of a product recall?

14. Page 14 Recording of this session via any media type is strictly prohibited. The Possible Financial Exposure Business interruption / Loss of profits Replacement of product Damaged reputation Recall costs Loss of brand equity

15. Page 15 Recording of this session via any media type is strictly prohibited. Facts & Figures Peanut butter recall due to salmonella Estimated - $70m 5 Fruit shots recall due to choking hazard Estimated - $41m 5 Laptop batteries recalled due to overheating Estimated - $400m 6 Toys recalled due to lead paint Estimated - $30m 6 14 million cars recalled due to overheating of an electronic switch Estimated - $280m 7

16. Page 16 Recording of this session via any media type is strictly prohibited. What is product recall insurance?

17. Page 17 Recording of this session via any media type is strictly prohibited. Product Recall Insurance Reimbursement of financial loss Balance Sheet & Brand Name Protection No frequency but severity Catastrophic Event Coverage Hybrid between Liability and Property First Party Coverage Discovered and reported during policy period Claims Made

18. Page 18 Recording of this session via any media type is strictly prohibited. Is there a one size fits all policy? Food & beverage, cosmetics, pharmaceuticals Consumable Products Household appliances, clothes, electronics Consumer Goods Components used in general manufacturing Automotive & Aviation Component Parts

19. Page 19 Recording of this session via any media type is strictly prohibited. What is the trigger of the policy? Not the recall of the product An Insured Event Knowing the use / consumption of product would cause BI / PD is sufficient No actual Bodily Injury or Property Damage needed Generally excluded in the GL policy Impaired Property

20. Page 20 Recording of this session via any media type is strictly prohibited. What types of financial losses can be covered? Loss of gross profit / business interruption Replacement costs (first & third party) Recall costs (first & third party) Extra expenses Rehabilitation expenses Customer loss of gross profit Customer extra expenses Customer rehabilitation expenses Consultant costs

21. Page 21 Recording of this session via any media type is strictly prohibited. Consultant Costs Recalls can be very complex Manufacturing knowledge Recall knowledge? Use of a consultant has proven to limit potential damage Loss mitigation work Deployment of product recall 24/7 Hotline Consultant costs are unlimited and no SIR applies

22. Page 22 Recording of this session via any media type is strictly prohibited. Who is buying product recall insurance?

23. Page 23 Recording of this session via any media type is strictly prohibited. Why companies buy coverage Experienced a product recall Witnessed a competitor suffering a recall Contractually required Potential for negative press / publicity / social media Risk Management decision Brand has become a critical asset and must be protected Protect the balance sheet to avoid potential D&O exposure Increase in legislation Complexity in supply chain

24. Page 24 Recording of this session via any media type is strictly prohibited. What should I consider?

25. Page 25 Recording of this session via any media type is strictly prohibited. Considerations for buying Product Recall Insurance What limits do I need to protect my balance sheet? How much can my balance sheet absorb? Do I need all coverage’s available? Diversity of Product Diversity of Geography Diversity of Customer Diversity of Supply Chain Numbers of Manufacturing Plants Batch Size / Daily Output / Production Lines

26. Page 26 Recording of this session via any media type is strictly prohibited. Questions?

27. Page 27 Recording of this session via any media type is strictly prohibited. Contact Information Gary A. Nesbit Director of Risk Management Advance Auto Parts, Inc. 5008 Airport Road NW Roanoke, VA 24012 Ph.: 540 561 3597 Cell: 540 632 8622 Email: gary.nesbit@advance-auto.com> Florian Beerli SVP Product Recall ACE Westchester 110 Washington Ave.; 3 rd Floor North Haven, CT 06524 Ph.: 203 234 6311 Cell: 678 234 8885 Email: florian.beerli@acegroup.com

28. Page 28 Recording of this session via any media type is strictly prohibited. References 1 - http://www.fda.gov/downloads/iceci/enforcementactions/ucm346964.pdf 2 - http://www.cpsc.gov/Global/About-CPSC/Reports/Annual-Reports/FY12AnnualReport.pdf 3 - http://www.nhtsa.gov/search?q=all+recalls+by+year&x=0&y=0Diversity of Product 4 - http://onlinembapage.com/supply-chain-management-mba-is-hot/ 5 – http://www.ey.com/Publication/vwLUAssets/Capturing_Recall_Costs/$FILE/Capturing_recall_costs.pdf 6 – http://www.investopedia.com/slide-show/car-recalls/ 7 - http://images.businessweek.com/slideshows/2013-01-17/the-most-expensive-product-recalls