Full Steam Ahead: Clearing the Horizon - Cassatt Insurance Company, Ltd.

Introduction/Speakers Speakers: Eric Dethlefs, CEO, Cassatt RRG Holding Company Tom Alesi, CFO, Cassatt RRG Holding Company Brad Adderley, Partner, Appleby Moderator: Butch Agnew, SVP, Aon Captive & Insurance Managers

Presentation Summary Speakers/Introduction Who is Cassatt Insurance Company, Ltd.? US Healthcare Business Environment Risk Financing Options Formation Summary Initial Challenges Early Results Righting the Ship

Presentation Summary (Continued) Relaunch Lessons Learned Questions?

Who is Cassatt Insurance Company, Ltd? –Cassatt Insurance Company Ltd. is a Class 2 Bermudian insurer celebrating its 20 year anniversary. –Formed in 1991 the Company’s lifecycle is a unique and interesting case study that highlights the potential ups and downs of a captive insurance program. –The Company participates in various layers of its shareholder organizations' insurance programs and insures or reinsures hospital and employed physicians' professional liability, miscellaneous health care institutions' professional liability, and general liability.

US Healthcare Business Environment Health Care Institution Dilemma – 1990s –Medical malpractice insurance crisis in PA Fewer carriers Lower availability of coverage Higher costs

Risk Financing Options Decision Time around how to deal with a significant operational constraint Available Options: Purchase commercial coverage Self-insurance Pure individual institutional self-insurance Shared risk program

For Captive Formation –Initially formed by hospital cooperative Buying power –Bermuda chosen as domicile Class 2 insurer –Group of 10 PA Hospitals Members / owners Insureds Transitioned to shared risk profile Formation Summary

Early challenges: –Thinly capitalized –Underwriting issues Inadequate premiums early on –Holding company operated by cooperative –Membership commitment? –Lack of centralized control Consultants in charge of major functions Lack of accountability Inability to effectively govern Initial Challenges

Predictable Results: 1993 to 2005: –High loss ratios –Declining surplus base –Thin regulatory compliance margins –Annual capital calls Early Results

Turning Point – January 1, 2006 –Cooperative exits insurance business –Cassatt Holding Company takes over: Risk management Claims management Underwriting Financial management Righting the Ship

Governance Committees: –Risk Management Advisory Group High risk sub-committees –Claims Advisory Group 10 physicians plus risk managers –Risk, Underwriting, Claims –Finance (all CFOs) Investment Advisory Group Audit committee Righting the Ship (continued)

Enhancements to Management: –Seasoned insurance professionals –Setting goals and objectives –Regular measurement –Regular committee meetings Righting the Ship (continued)

Off-shore expertise: –Captive manager Day-to-day operations Benchmarking –Management consultant Ratio analysis –Legal and compliance Corporate services –Reinsurance brokerage Righting the Ship (continued)

Current Company Status –Integrated risk management: Group symposiums (CME) Lessons learned Risk-based assessments: –Obstetrics –Radiology –Emergency medicine Accountability –Transparency Relaunch

Current Company Status (continued): –In house claims management: 5 seasoned handlers Governed by claims advisory group Actively manage cases Defense counsel grading system Goals and objectives: –24 month reserves to ultimate –Settle only when warranted –Litigation success rate Relaunch (continued)

Current Company Status (continued) –Underwriting Guidelines –Shared risk program –Premiums reflect experience / exposures Professional liability insureds: –Health care institutions –Employed physicians –Independent physicians –Entities –Integration of physician base –Coordination of defense Relaunch (continued)

Current Company Status (continued) –Financial Management Operational goals measurement: –Loss ratios –Underwriting results –Surplus-to-net reserve ratio –Overall company confidence level –Regulatory compliance margins –Financial stress testing »Underwriting scenarios »Investment scenarios Relaunch (continued)

Current Company Status (continued) –Investment Management –Investment Consultant –Investment Policy Statement; Safety of principal Liquidity Yield as a distant third Stress testing and Market opportunities Changing environment STAY THE COURSE Relaunch (continued)

Current Company Status (continued) –The Governance Process Shareholders Board of Directors –Subcommittees –Active involvement Regular Meetings Relaunch (continued)

Current Company Status (continued) –Cassatt has recently undertaken a comprehensive review of the Company’s bye- laws –Appleby’s has been instrumental in this bye- law refresh process guiding a Board working group through the nuances of multiple shareholder structure. –The work of the Cassatt board, and Cassatt Holding Company has positioned the Company in an excellent spot to adopt the Bermuda Code of Conduct. Relaunch (continued)

Major Lessons Learned –Hire qualified insurance expertise Internal staff Outside consultants –Set up goals and objectives –Set up an effective governance structure –Take control of your captive Lessons Learned

Questions?