1. Page 1 Recording of this session via any media type is strictly prohibited. Page 1 Risk Strategy Safari Monday, April 28, 2014 RIF011 Carol MurphyAndrew Nottestad Managing DirectorDirector, Corporate Aon Risk Solutions, Inc.United Continental Holdings

2. Page 2 Recording of this session via any media type is strictly prohibited. What to Expect/Learning Objectives 1.Understand current risk financing challenges for 2014 including terrorism legislation coming up at year-end, updates to Property modelling, collateral, and Reputation Risk. 2.Proven, cutting edge financing solutions and new tools from real life case studies. 3.Framework for risk financing communications with senior management.

3. Page 3 Recording of this session via any media type is strictly prohibited. Page 3 Property TIV Return on Investment

4. Page 4 Recording of this session via any media type is strictly prohibited. Investing in your property exposure data may pay big dividends as CAT Models play a bigger role in pricing your property insurance 4  Insurance underwriters use several methods to come up with premium  One method for CAT exposed accounts is to multiply the RMS Annual Average Loss by a multiplier  Improving the RMS data quality typically improves the average annual loss  RMS typically defaults to a worse assumption if data is unavailable  A typical range that insurers may multiply the AAL by is 1.5 to 1.7 using 1.6  EQ AAL down $1.5M is $2.4M less cat premium loading  Windstorm AAL down $300,000 is $0.5M less cat premium loading

5. Page 5 Recording of this session via any media type is strictly prohibited. 5 CAT Modeling

6. Page 6 Recording of this session via any media type is strictly prohibited. 6 + Science Art ASSUMPTIONS ACTUARIAL & FINANCIAL MODELS Risk Assessment Modeling As sophisticated as your model ever gets it can only be a simplification of reality…

7. Page 7 Recording of this session via any media type is strictly prohibited. A COMMENT ON STATISTICS 7

8. Page 8 Recording of this session via any media type is strictly prohibited. 8 CAT Modeling Results Track With Reality?

9. Page 9 Recording of this session via any media type is strictly prohibited. Page 9 Collateral – Reducing Economic Cost

10. Page 10 Recording of this session via any media type is strictly prohibited. 10UW Madison April 11, 2013 201220112010200920082007200620052001200320042002 PAID IBNR CASE RESERVE Understanding Collateral COLLATERAL REQUIRED Negotiate paid loss credits with insurer based on insured’s credit quality and payout pattern Workers’ Compensation Retained Risk Profile

11. Page 11 Recording of this session via any media type is strictly prohibited. 11 WC COLLATERAL 3% WC EXPENSES AND TAXES WC RETAINED LOSS RISK TRANSFER Collateral Costs are > 10% of Many Companies TCOR 1. COST OF COLLATERAL = Assumes 8% cost of restricted cash UW Madison April 11, 2013 Understanding Collateral Significant Cost for Companies

12. Page 12 Recording of this session via any media type is strictly prohibited. 12 Type States Accept Insurers Accept Cost Effective Call Risk Letter of Credit Enhanced Letter of Credit Surety Cash Trusts CA Alternative Security Plan Real Assets / Hybrid Typical forms of collateral and general characteristics for less than investment grade companies UW Madison April 11, 2013

13. Page 13 Recording of this session via any media type is strictly prohibited. Page 13 Collateral Management Process Overview UW Madison April 11, 201313  What Collateral Exists?  What are the cost?  Financial Analysis of cost metrics  Actuarial Analysis  Risk Financing Strategies  Program Design  Leveraging safety initiatives AnalysisRecovery & Workout Collateral MapStrategies  Buyout/Closeout  Loss Portfolio Transfers

14. Page 14 Recording of this session via any media type is strictly prohibited. Page 14 Reputation Risk

15. Page 15 Recording of this session via any media type is strictly prohibited. Reputation Risk: 1.Changing internal and external environmental factors 2.Can create division between stakeholder expectations and company behaviors 3.Reputation risk evolves when stakeholder expectations are not met 4.Reputation risk can expand the risk, volatility and cost of other operational risks

16. Page 16 Recording of this session via any media type is strictly prohibited. Reputation Risk A strong reputation already does not necessarily protect the firm in tough times. Instead, organizations with strong reputations already may suffer more consequences of stakeholder disappointment. Case Study: BP Source: Corporate Executive Board

17. Page 17 Recording of this session via any media type is strictly prohibited. Caught Off Guard Even the most respected companies can be caught off guard when there is a shift in public sentiment. Case study: Cadbury Schwepps “Get Active” promotion. Source: Corporate Executive Board

18. Page 18 Recording of this session via any media type is strictly prohibited. Page 18 Update on Terrorism Legislation / TRIPPA and Insurer Response

19. Page 19 Recording of this session via any media type is strictly prohibited. 2014 Casualty Marketplace: The Great Tug of War

20. Page 20 Recording of this session via any media type is strictly prohibited. Market balance Depressed interest rates Slowing reserve releases Rising tort costs Depressed industry ROE TRIPPA uncertainty Record policyholder surplus Market competition Improving economy Exposure growth Rate Increases Rate Decreases

21. Page 21 Recording of this session via any media type is strictly prohibited. Market uncertainty: Terrorism backstop (TRIPRA)  Current version of federal terrorism backstop (TRIPRA) expires 12/31/2014  Casualty lines impacted:  General and excess liability  Workers compensation  Market focus on workers compensation due to aggregation risk  Conventional wisdom suggests TRIPRA will be renewed with greater risk borne by private sector

22. Page 22 Recording of this session via any media type is strictly prohibited. Market uncertainty: Terrorism backstop (TRIPRA)  Uncertainty created by its expiration beginning to have implications for renewals  Ability to re-price terrorism exposures  Ability to exclude terrorism (GL/excess only)  Short term workers compensation policies  Market dislocation  Navigating the uncertainty:  Start early  Obtain best exposure data possible  For risks with pricing uncertainty, negotiate terms if TRIPRA is renewed

23. Page 23 Recording of this session via any media type is strictly prohibited. TRIPPA Reauthorization: Which direction will it go? The Left: Pulling for continuation of public sector support The Right: Pulling for higher private sector share

24. Page 24 Recording of this session via any media type is strictly prohibited. Page 24 Framework for Communication with Senior Management

25. Page 25 Recording of this session via any media type is strictly prohibited. Integrating Confidence Levels and Financial KPI’s Will Provide a Greater Understanding of Volatility in Go-Forward Program Design 25 Establishes appetite levels for enterprise risks and tolerance levels for insurable risks which are linked to corporate performance objectives and volatility thresholds Generates a thorough understanding of current insurance exposures, individually and/or in portfolio 2.Dynamic Risk Modeling 3.Design & Program Stress Testing (including funding) Provides a cost/benefit comparison of various risk management strategies including captive and alternative risk strategies 1.Risk Appetite Analysis Aon Risk Solutions | Global Risk Consulting | Proprietary & Confidential Understanding Impact of Volatility

26. Page 26 Recording of this session via any media type is strictly prohibited. Risk Financing Decision Platform Identifying the Efficient Frontier 26 Aon Risk Solutions | Global Risk Consulting | Proprietary & Confidential

27. Page 27 Recording of this session via any media type is strictly prohibited. Communicating Impact to Management CFOs don’t like surprises Stability Prediction accuracy Not all risks important to CEO or CFO appear on financial statements ‘So what’ response to data generation Prioritization Conflicting incentives Metrics – compliance vs. impact Example: OSHA statistics vs. workers’ compensation costs Common language Other considerations? 27

28. Page 28 Recording of this session via any media type is strictly prohibited. Management Communications Tool – Example 28

29. Page 29 Recording of this session via any media type is strictly prohibited. Thank you! Please complete the session survey on the RIMS14 mobile application.

30. Page 30 Recording of this session via any media type is strictly prohibited.

31. Page 31 Recording of this session via any media type is strictly prohibited. 31 Andrew Nottestad 20 years experience as Risk Manager and Insurance Professional Currently Director of Corporate Insurance at United Airlines Held both divisional risk management and corporate roles at AXP and PepsiCo Integrated and spun off numerous multi-billion dollar companies risk and insurance programs Started career at Wausau Insurance Companies as a Commercial Underwriter Insurance and RM Experience Strong Academic Foundation