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Sony Pictures Entertainment Inc.
April 5, D-R-A-F-T 15
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SONY PICTURES ENTERTAINMENT
MISSION STATEMENT PROTECT THE ASSETS OF SONY PICTURES ENTERTAINMENT
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RISK MANAGEMENT STRUCTURE
Janel Clausen Vice President, Risk Management Aaron Au Coordinator Work Comp Claims & Admin Support for Dept. Kate Calabrese Claims/Systems, Administrator Media Liab. Claims, EPL Claims, Dept. Budget & Risk Mgmt Systems Mgr. Douglas Hastings Claims Manager GL, Auto, Property & Production Claims Donna Tetzlaff Director Global Corporate Risks including Distribution Activities Dawn Luehrs Director Global Production Risks Britianey Barnes Administrator Global Production Risk Support, Bonds & Notary
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Risk Management and Insurance Strategy
Central to our role as SPE’s Risk Management Department is the rigorous process utilized to assess SPE’s exposure to risk on a long term strategic basis and day-to-day project basis. Inherent to anticipating and proactively addressing SPE’s risk exposures, we: Understand SPE’s objectives in designing and implementing a superior insurance program, using specialized professional resources as needed, in formulating cost efficient risk management and insurance solutions. Formulate action plans to leverage SPE’s strengths and opportunities of SPE’s risk techniques relative to overall financial and operational conditions, the business environment as well as insurance market conditions. In partnership with our Internal Group Contacts and External Risk Management Professionals, we continually identify / evaluate opportunities and threats which arise and implement processes and procedures to address them. Examples of Risk Management Functions: Develop, negotiate, and maintain insurance programs for global operations Claims Management for Global Operations Maintain insurable asset inventory and exposure data Allocate risk costs to the Studio, each Production and all other groups Executive Management Reports
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Glossary of Insurance Coverage
Auto Liability Insures SPE when legally liable for bodily injury and/or property damage to another party caused by an SPE owned/hired or non-owned vehicle General Liability Protects SPE against another party's bodily injury and/or property damage claims arising out of SPE's premises; operations; products and completed operations due to SPE's negligence. Foreign Auto / General Liability Policy covers same insurance as above US Workers' Compensation & Employer's Liability WORK COMP - provides no-fault statutory benefits for employees due to a job-related injury (including death) resulting from an accident or occupational disease EMPLOYER'S LIABILITY - pays on behalf of the employer all sums that the employer becomes legally obligated to pay due to a job-related injury (including death) resulting from an accident or occupational disease caused by the employer's gross negligence. Foreign Work Comp & Employer's Liab Same coverages as US above Non-Owned Aviation Liability & Hull Covers SPE when SPE is legally obligated to pay for bodily injury, (including death) and /or property damage to another party arising out of the maintenance or use of an owned or non-owned aircraft. Hull Coverage included. Pays for physical damage to the owned or non-owned aircraft. Media Liability & Technology Errors & Omissions MEDIA LIABILITY - Protects SPE against third party infringement, (copyright/trademark) claims regarding SPE's created content produced and/or distributed by SPE through any medium. TECHNOLOGY ERRORS & OMISSIONS - insures against third party liability claims against SPE relating to SPE's business activities of build, modify, supply, install, deliver and provide entertainment related software and technology services; i.e., interactive games, post production services, web hosting & design and related customer support, maintenance consulting and training. Cyber Liability Insures SPE against third party claims for network security breaches as respects corporate confidential and data privacy information. Global Property Property insurance against physical loss or damage of SPE's physical assets due to perils such as fire, lightening, vandalism, malicious mischief, water damage, earthquake & flood. Policy also provides insurance for loss of business income and extra expense Production Package Insures SPE's productions against losses of property & business interruption due to injury or illness of a covered artist; damage or loss of equipment; props; sets; wardrobe; physical damage to production vehicles and third party property damage Boiler & Machinery Covers SPE for physical damage or loss caused by a sudden and accidental breakdown of SPE's boilers and machinery equipment, HVAC or any other equipment. Employment Practices Liability Protects SPE from claims brought by employees arising out of discrimination, wrongful termination; sexual harassment. D&O Liability Covers SPE's directors & officers, or management equivalent for acts of errors or omissions committed in their capacity as Ds & Os or management equivalent of SPE and SPE subs Crime Covers SPE for employee theft or dishonesty acts, loss of money & securities, depositor's forgery, robbery, embezzlement. Fiduciary Liability Covers errors & omissions of SPE's trustees, employers, fiduciaries, professional administrators as respects the administration of employee benefit programs. Employed Lawyers Errors & Ommissions Liability Covers SPE when SPE is legally obligated to pay damages arising from a claim for wrongful acts of its corporate attorneys but only when SPE cannot legally indemnify the corporate attorney. Special Crime Protects all of SPE's Ds & Os, employees, leased or temporary employees, students, volunteers, loan outs, independent producers, employees paid by a payroll service company, consultants…for perils of Kidnap, Ransom and Extortion. Terrorism Insures for physical loss or damage for acts of terrorism or political violence, (Political Violence is physical loss or damage due to a government action: e.g., confiscation, expropriation, currency inconvertibility) Marine Covers non-owned watercraft liability, physical damage on hull and owned vessel pollution. Ocean Cargo Cover overseas shipments of property & equipment.
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Production Risk Management – A Dynamic Process
Pre-Production Initial Production Notice to Risk Management – Weekly Production & Business Affairs Meetings, Online Publications, Phone Calls Script Review, Exposure and Location Analysis – Domestic/International determination Cast declarations, medicals, stop dates and cast multi-production utilization Budgeting –Finalize Insurance line, Identify special insurance extensions – cast (age, medical etc.), marine, aviation, railroad, automobile, stunting, international, disability, duration of production SEHS Coordination Production Adapt to changes in pre-production schedule Location changes Contract Review – Standard SPE/Non-Standard, Vendor, Supplier and amendments to Insurance Policies and Insurance Certificates as needed Claim activities Special Hazard Identification and Insurance treatment Watercraft Aviation Stunting Railroad Automobile SEHS Coordination Post-Production Additional Filming and Re-Shoots Claims Finalization Annual Production Renewal Process
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Corporate Risk Management – A Dynamic Process
Risk Management Analysis and Administration Identify corporate global risk exposures Review contracts, leases, agreements Monitor changes to locations, human resources, inventory and warehouses Assess impact of insurance laws and requirements by country of operation Due diligence for mergers & acquisitions Analyze insurance solutions for new/changing exposures International Media Terrorism Cyber Risk Surety Bonds Respond to internal SPE inquiries (e.g. clearance procedures, claims, INFOSEC, legal, SEHS) Coordinate insurance responses for promotions, sales, marketing, distribution, studio operations, digital, the internet Ongoing claim management Manage annual insurance budget Global Insurance Renewal Process Activities begin 120 days before renewal and varies by coverage (Property, Casualty, E&O, D&O, Marine, Aviation, etc.) Collect exposure data from SPE entities (values, payrolls, productions costs, sales, vehicles) Update claim summaries/status by line of coverage Partner with broker to finalize submission and renewal program design and negotiation strategy Meet with insurers as necessary Monitor renewal progress and respond to insurer requests Analyze insurer proposals and make recommendations to SPE management Implement renewal and coordinate certificate issuance, reviews and approves insurers’ premium invoices for payment. Manage ongoing relationships with brokers and insurers until subsequent renewal cycle (e.g. Tokio Marine – major strategic partner)
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SPE Risk Management: The Day-To-Day
Contract reviews Corporate (200) Productions Domestic and Foreign(1,500 per year) Coverage Requests (600 per year) Scope, limits, extensions, amendments Outgoing Certificates Issued and Reviewed (3,000 per year) Same Day Issuance Notice of Cancellation Compliance Incoming Certificates Reviewed (600) Special Endorsements (2,000 per year) City Specific Additional Insured – General Liability Specific Vendor Additional Insured – General Liability Notice of Cancellation – General Liability Additional Insured – Media Liability; Errors & Omissions Policy Renewals Gather and transmit renewal data to insurer for negotiations Policies reviewed to verify terms and conditions match quotations received Policies summarized updated and maintained Ongoing Cross-Team communication s:file path
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SPE Risk Management Broker Relationships
Risk Assessment – conduct annual review of SPE’s risk profile, highlighting changes which could impact coverage requirements. Quantitative Analysis – assess recent and historical loss trends. Emphasize improvements which can result in deductible / structure improvements Benchmarking of Insurance Markets – annual assessment is undertaken to identify best-in-class insurers capable of responding to the SPE Risk Management Standards. Program Negotiation – negotiate optimal program structure with cost effective balance between deductibles and premiums. Program must provide the most comprehensive coverage with the flexibility to respond quickly to SPE’s inherent and contractual exposures. Day-to-Day Administration – timely and accurate responses to SPE’s unique day to day requirements.
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SPE Risk Management Underwriter Relationships
Long standing and beneficial partnerships with Fireman’s Fund and Tokio Marine Nichido Fire and Insurance Co. developed over time. Production Package market is limited and Fireman’s Fund has been identified as a preferred partner Have $250,000,000 per picture capacity available Provide rating structure that keeps costs low Works closely with SPE on difficult placement issues Appreciates our Risk Management approach Tokio Marine has been a preferred partner since the Sony acquisition and participates on major portions of the property & casualty programs Appreciates Risk Management approach and provides solutions to production liability coverage not easily obtained from other markets. Includes hard to obtain coverage for production risks in basic policy: Stunt activities including driving Pyrotechnics Will include loan outs & independent contractors as additional insureds Hiscox has emerged as a strategic partner for the specialized Media Liability risks of SPE Insurance Company providers are continually assessed for their financial stability and a long term commitment to the Entertainment Industry
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Risk and Insurance Total Cost of Risk – Fiscal Year 2012
Premiums: $15,000,000 (includes all U.S./Canada and Master International) Retained Losses: $4,500,000 Estimated (includes: auto, general liability, workers compensation, errors & omissions/media and cyber, production) Exposures Revenue: $7,900,000,000 Property Assets (Total Insured Values): $1,920,000,000 (Replacement Cost including Business Interruption + Extra Expense) Workers Compensation Payroll (subject payroll): $733,389,809 (Head Count 4,568) Insurable Production Cost: $800,000,000 (TV, MP, Home Entertainment, Digital and Studio) Protection 18 Major Lines of Coverage Over 40 Underwriters providing over 70 Policies plus numerous local and international policies for non-US production offices
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Annual Total Casualty Premium/Retained Losses vs
Annual Total Casualty Premium/Retained Losses vs. Total Annual Revenues – 2006 thru 2012
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Annual Workers’ Comp Premium/Retained Losses vs
Annual Workers’ Comp Premium/Retained Losses vs. US Headcount – 2006 thru 2012
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Annual Global Property/B&M/Terrorism Premium/Retained Losses vs
Annual Global Property/B&M/Terrorism Premium/Retained Losses vs. Property Values – 2006 thru 2012 Property Values (in 000s) Note: An aggressive marketing effort at locking in rates for multi-year programs proved beneficial during several years of natural disasters
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Annual Production Package Premium/Retained Losses vs
Annual Production Package Premium/Retained Losses vs. Net Insurable Production Costs – 2006 thru 2012
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Risk and Insurance Strategy: SPE Risk Management Achievements
Casualty, Property and Executive Risk Financial Collateral reduction of $900,000 in 2012 Implemented International Master Control Program ; savings of $243,000 Workers’ Compensation program moved from ACE to Tokio Marine in 2010 after aggressive marketing in 2009; saving $900,000 Work Comp Medical Bill Review pricing shifted from percentage (25%) of savings to per bill ($12.50). Estimated cost savings in excess $100,000 Major Insurance Claim Settlements Marvel - $3,000,000 SPE Cyber Attack - $400,000 Grouper - $15,000,000 Pinewood - $15,000,000 Crime and Employment Claims –$1,400,000 Program Enhancements Lowered Workers’ Compensation deductible from $750,000 to $500,000 Increased CA Earthquake Coverage from $70,000,000 to $100,000,000 Increased Property Program Loss Limit from $400,000,000 to $500,000,000 Cyber Liability program was separated from the Multimedia/Technology program and now have a separate $20,000,000 limit with expanded coverage Cyber Liability amended to provide coverage for the care, custody and control of Third Party Intellectual Property Assets
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Risk and Insurance Strategy: Sampling of SPE Risk Management Achievements
Program Enhancements (cont.) Terrorism Coverage - Expanded Policy Form to include Coverage For Political Violence; Secured Coverage For $193,000,000 International Office Schedule at No Charge; Expanded Policy To Provide $1,000,000 in Coverage For Previously Excluded Territories (War Risk when declared) Regular testing of Broker Offerings with RFP's in 2007 and 2011 Maintaining experienced staff while developing new staff assuring quality service continuity with regular staff evaluations and goal setting Unique claim settlements (Pinewood property claim, certain E&O claims, 9/11 Civil Authority) Implementation of Risk Management Information System (RMIS) Reduction of Cost of Risk over the last few years despite upward cost pressure from insurers Production Program Cast clearance extensions negotiated for higher risks Anna Nicole Smith Grown Ups 2 London Calling Michael J. Fox Project One Direction Increased coverage for Ingress/ Egress (relevant for Hurricane Sandy claims est. $300,000) 2013 renewal enhancements: Premium savings of $900,000 Increased sub-limits for civil authority Increased covered artists from 20 to 25
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Insurance Combination Opportunities/Challenges
Opportunity to combine due to commonality of exposures for these coverage lines: Umbrella Fiduciary Directors and Officers Employment Practices Employed Lawyers Crime Kidnap, Ransom & Extortion Due to minimum premium levels, combination savings would be modest and result in a dilution of limits. Note: Maintaining broadened definition of insured and on-location extensions of coverage are important Challenges Relative to risk exposures-most types of insurance purchased by SPE would not generate positive leverage by combining with SCA SPE Property Program consists of significant values in California providing coverage with finite amount of Earthquake limits available which would be diluted if combined with SCA values particularly in California Types of Property insured by SPE significantly different than those of SCA (SPE’s sound stages vs. SCA’s HPR manufacturing/distribution locations) SPE Workers’ Compensation and General Liability coverages would not be viable lines of business to consider combining because of the unique film production exposures Cyber Liability policy has been drafted specifically for SPE’s risk profile along with coverage for the care, custody and control of any third party intellectual property assets (not combinable due to market relationships and exposures) Media/Technology policy has been drafted to the specific needs and requirements of SPE and its contractual requirements (not combinable due to market relationships) Production Package policy is unique to SPE covering motion picture and TV production ( could roll in SME’s video production activities)
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Appendix
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SPE Business Partners & Resources
INTERNAL Procurement Legal/Litigation Business Affairs Studio Operations & Facilities Real Estate Corporate Safety/Security & Environmental Affairs Information Security Compliance Corporate Communications Information Technology EIS Infrastructure Marketing & Publicity for MPG/TV and HE Digital Group – SPI, SPII, SPA, SP Technology Production Acquisitions for Sony Pictures Classics, Worldwide Corporate Acquisitions and Mergers Corporate Events SCA/SEL/SME Risk Management Finance Medical Department People & Organization Transportation Tax Labor Relations Home Entertainment Post Production International Groups
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SPE Business Partners & Resources
EXTERNAL Adjusters Artists Business Managers Attorneys Physicians/Nurses Studio Risk Managers Insurance Brokers & Carriers Appraisers Vendors/Contractors/Consultants Investigators Muni/Government Agencies Finance Companies
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Corporate Example – Cyber Insurance
CYBER ISSUES: In 2011, SPE’s Cyber Insurance was included in the Media Liability Policy. SPE experienced a breach on June 2, 2011 through the sonypictures.com website. Claims expense was $1.6 million. Due to our claim and several other significant cyber claims, our underwriters made the decision to get out of the Cyber Insurance arena. INTERACTION: SPE Risk Management gathered data for three insurance applications. Before starting the marketing and quoting process, SPE Legal needed Non-disclosure Agreements (NDAs) from the three insurance companies involved in quoting. Applications were prepared by SPE Risk Management with assistance from InfoSec, Legal Compliance and Litigation. Other required information was also compiled and submitted to the insurance companies with the application (i.e., Sony Global Basic Principles on Personal Information, [name others]. After submission was received by the insurance companies, Risk Management facilitated many meetings and conference calls over a three month period. Participants were SPE Risk Management, InfoSec, Legal Compliance, Litigation, Lockton and the underwriters from the insurance companies. Discussions included private information (credit cards, bank accounts, social security numbers); systems security; how information is collected, stored and monitored; and breaches (including procedures after a breach is discovered). These meetings also addressed Ultraviolet and Media Cloud Services and third party content that SPE has in its systems (including in the “Cloud”) for outside studios and production companies. RESOLUTION: As a result of our efforts, we were successful in obtaining a program through [Brit]??, Liberty Mutual and Beazley for $20 million in limits with a $10 million self insured retention. It is important to note that this policy includes coverage for third party content in our care, custody and control. This is a difficult risk to insure and new to the insurance market. SPE personnel involved in obtaining coverage: Janel Clausen & Donna Tetzlaff - SPE Risk Management Len Venger - SPE Litigation Ophir Finkelthal – SPE Corporate Legal Jason Spaltro, David Lin and Danny Chi from SPE InfoSec Cynthia Salmen and Courtney Schaberg – SPE Compliance Emily Freeman – Lockton, SPE’s insurance broker Underwriters from Brit, Liberty Mutual & Beazley
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Production Example – London Calling
CAST INSURANCE ISSUES There are broad exclusions built into SPE’s production package policy, these include Stop Dates (when an artist needs to be released to another production), and participation in Stunting and Hazardous Activities. To the extent there is an exclusion imposed by the underwriters, Risk Management needs to work with everyone involved to get the exclusion waived. London Calling aka Amazing Spider-Man 2 is an example of the process to secure full coverage. Notification - Underwriters receive notification of possible excludable cast situation by various methods. Risk Management gives verbal or written notification or Cast Medical paperwork identifies an issue (e.g. hazardous stunt activities, pre-existing medical conditions, participating in other projects at the same time.) Example - Shailene Woodley’s Medical exam revealed – Stop Date issue as well as hazardous activities, i.e., motorcycle riding First result - $2MM deductible for any loss due to training, practicing & riding motorcycle. INTERACTION Shailene Woodley - Stop Dates & Hazardous Activities - Risk Management first notified during pre-production phase that artist needed to learn how to ride a motorcycle and that she would be performing in another production. Worked with Producer, Denise Pinckley & Stunt Coordinator, Andy Anderson to obtain training info, i.e. current experience, anticipated activity, training schedule. This type of information needs to be very detailed, i.e., speeds, where, who is training, what is involved, make sure the safety group is aware. Carrier requested their Executive Director Loss Control, Paul Holehouse review documentation & coordinate with our safety team To lift stop date – need day out of days report and activities for both shows; are there any shoot around possibilities. To reduce deductible for motorcycle riding, need average daily shooting costs; shoot around possibilities; scenes riding in, etc. Andrew Garfield, Emma Stone, Jamie Foxx, Dane DeHaan – all had stunting exclusions in addition to a medical issue for Emma Stone. Resolved by soliciting the help of production, the carrier, our broker and Sony’s internal Motion Picture team (Michael Marshall, EVP Business Affairs; Deb Bruenell, Sr. VP Legal; Debra Bergman, VP Production Administration; Pete Corral, Sr. VP Production Administration; John Clements, Exec Director, Production Loss Control RESOLUTION Shailene Woodley’s issue took nearly 3 months of back and forth discussions before a positive resolution. The end result was lifting the stop date restriction and acceptance of a one day deductible (equivalent to $500,000). All other artist restrictions were removed following the same process.
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