1. Intro to Captives, Case Study and the Bermuda Domicile 9:00am – 10:30am Poinciana Room

2. Panel Introductions Moderator Elma Chambers, VP, Strategic Risk Solutions (Bermuda) Ltd. Speakers Karl Klockars, former Partner at Hinshaw & Culbertson LLP, former EVP and General of Ministries of Benevolence, and President Emeritus of Covenant International Insurance Company, Ltd. Sophia Greaves, Director, Conyers Dill and Pearman Limited Leslie Robinson, Assistant Director, Licensing and Authorizations, Bermuda Monetary Authority

3. Agenda Introduction to Captives -What is a captive -When and why form a captive -Captive Structures & Bermuda Licensing System Case Study: Covenant International Insurance Company, Ltd. The Bermuda Domicile -Domicile Selection -Why Bermuda -Captive Formation -Challenges and Opportunities

4. Introduction to Captives What is a captive? A closely-held insurance company whose insurance business is primarily supplied by and controlled by its owners and in which the original insureds are the principal beneficiaries A risk management tool designed to assist its parent company with their risk financing needs, when retention of a given risk is considered more appropriate than risk transfer.

5. Introduction to Captives When to form a captive Identify Upper Limit TransferableRetainTransferable (Material) Insurable Risk Confidence Level Loss Value ($) Probability of Loss Markets won’t insure or will charge excessive premium Earnings & Equity Capital are sensitive to losses Earnings & Working Capital can sustain losses Equity holders may be willing to chance a loss Insurable Risk Tolerance Level Risk Retention Strategy Risk Transfer Strategy Possible Captive Retention

6. Introduction to Captives When to form a captive Significant premium size Good historical loss experience Good loss control programs in place Profit center Possible tax benefits

7. Introduction to Captives Main reasons for forming a captive Increased coverage and capacity Access to reinsurance market Cost Saving ERM Strategy

8. Introduction to Captives Reasons not to form a captive Insurance markets are cost effective Insufficient premium volume Unable to make long term commitment Inappropriate risk profile Tax and regulatory complications Lack of risk appetite

9. Introduction to Captives Types of Structures Single Parent Group Captives Segregated Account Companies Rent a captive

10. Introduction to Captives Bermuda Multi-License System Risk-based approach to regulation Risk-based insurer classification system –Captive insurer classes – 1, 2, 3, and A, B (proportional risk- based regulation and supervision) –Commercial insurer classes – 3A, 3B, 4, and C, D, E (enhanced regulation – in line with European Solvency II, U.S. (NAIIC) Qualified Jurisdiction status requirements)

11. Introduction to Captives Captives – Minimum Solvency Margins Class of InsurerClass 1 100% Related Business Class 2 < 20% unrelated business or a multi- owned insurer Class 3 20% to <50% unrelated business Minimum margin of solvency Greater of: Minimum Statutory capital & Surplus $120,000$250,000$1,000,000 Premium Test20% of first $6m NPW plus 10% for excess $6m 20% of first $6m NPW plus 15% for excess $6m Loss Reserve Test10% of Loss & Loss Reserves 15% of Loss & Loss Reserves

12. Case Study Covenant International Insurance Company Ltd. The ParentEvangelical Covenant Church The Parent IndustryRetirement communities Reason for setting up CIICMaintain underwriting profits & access to coverage Year Set Up & Domicile2000, Barbados Lines of Business Property; General Liability; Workers' Compensation; Professional Liability and Auto Program Structure Premium volume, direct/fronted, level of risk retention & transfer through reinsurance Year Redomiciled to Bermuda & reason2009, quality of captive service providers Captive PerformanceLong term benefits have been realized Domicile Experience Management, banking and auditing talent; robust regulation; political stability; proximity to US

13. The Bermuda Domicile Factors to consider when selecting a domicile Legislation and Regulation Capital required Solvency requirements Tax Implications Banking Choices Management/audit/legal services availability

14. The Bermuda Domicile Why Bermuda? Experience: premier captive domicile -800 active captives as of 31 st December 2015 -Market Statistics Reported in 2015 based on 31 December 2014 year ends: Gross Premiums Net Premiums Total AssetsCapital & Surplus $55.3 billion$39.5 billion$196 billion$79.3 billion

15. The Bermuda Domicile Why Bermuda? Skilled professionals, management companies, attorneys, auditors, banking and investment services One of the largest reinsurance centers in the world (15 of the top 40 reinsurers are based in Bermuda) One-Stop-Shop – access to insurance and reinsurance market on island Politically stable and robust legal system Geographical convenience: proximity to North America and the UK

16. The Bermuda Domicile Why Bermuda? The Bermuda Monetary Authority –Integrated regulator of the financial services sector in Bermuda –Independent from government, but often advises the Ministry of Finance in matters pertaining to financial services World class regulator with a pragmatic approach –Creativity & Innovation –Modifying accounting regulation (e.g. approving “relevant assets”, admitting assets, modifying filing requirements)

17. The Bermuda Domicile Captive Formation Incorporation and licensing -Business Plan -5 Year Financial Projections -Selection and acceptance of service providers: Principal representative (usually a captive management firm), audit firm, corporate secretary and bankers -Director resumes and personal declarations Company Activation - Capitalization -Organizational Meetings

18. The Bermuda Domicile Captive Formation BMA Approval Process - Application to incorporate the company Can have same day response -Application for insurance license Can be done concurrently with incorporation Completed applications received by 5 p.m. on Monday will be reviewed and responded to on Friday of the same week. -Final registration and insurance licensing Upon approval of application and receipt of all registration documentation, issuance of license can take up to 5 business days

19. The Bermuda Domicile Challenges & Opportunities Soft Market Low investment returns Competition from other domiciles European Solvency II and NAIC U.S. Qualified Jurisdiction Status Mature captive domicile – organic growth Emerging Markets, e.g. Latin America, Far East Tax Information Exchange Agreements (TIEAs)

20. The Bermuda Domicile Questions?