Collateral Analysis and Negotiations – Insurer Perspective Wednesday, February 8, 2012 Barry Martin, Senior Vice President – Business Development

Objectives Discuss why insurer needs Collateral Identify considerations used to determine amount of collateral required Discuss traits of successful collateral negotiations

Why do Insurers Require Collateral? Not always a regulatory requirement Insurer’s are ultimately responsible to pay claims - In business to insure, not be a bank -Accountable for losses if insured chooses not to or can’t pay claims.

Inputs in Determining Collateral – Insurer’s Perspective Loss Reserves and Projections Nature of insured operations and exposures Loss forecasting models Common areas of disagreement - Selection of development factors - Credibility given to insured’s own experience - Confidence level - Impact of tail of claims

Inputs in Determining Collateral – Insurer’s Perspective Evaluation of Insured’s Creditworthiness Credit Exposure is Life of Claim Financial strength of Insured -Liquidity and Leverage -Cost and timing of credit -Public credit ratings -Insured’s position in their marketplace -Long term demand for goods/services

Inputs in Determining Collateral – Insurer’s Perspective Contractual Obligations Other items besides losses for which insured is responsible Payment of claim handling fees Unpaid premiums, assessments, audits Other obligations to indemnify carrier

Key to Successful Collateral Negotiations – Insurer Perspective Communication, Communication, Communication Managing expectations Nobody likes surprises Understanding where the decisions are made Keep this from being a last minute issue