Captive Proposal for Property Owners

Introduction Commission earned from insurance premiums is often a large revenue stream to property owners. There is increasing regulatory pressure to move to a fully transparent system. Such disclosure would prejudice this income stream. The use of a captive or protected cell could largely maintain this revenue stream for the property owner.

The Opportunity To help maintain revenue levels, an option for property owners to consider is to consolidate the risk of insuring their properties, through the use of captive insurance. The method is fairly straightforward. A UK insurer would issue the policy to the property owner and an element of the premium payment would represent a reinsurance premium, paid onwards by them to a captive insurance vehicle, which would cover part of the risk. If there is a record of low claims, and this situation continues in the future, the majority of the reinsurance premium paid could be profit within the captive insurance vehicle. Risk, of course, will always exist but in many commercial property portfolios claims are infrequent and it would be the low level risk that would be covered in the captive.

Captive Insurance A captive insurance mechanism can be arranged through either a captive insurance company owned by a landlord or through a cell in a protected cell captive insurance company owner by a third party. This second option generally involves lower costs and less management time. Standard claims reporting clauses insist that claims are reported within thirty days. This means that within sixty days of the end of the reporting period, comprehensive management accounts for the cell can be produced. After allowing for an adequate reserve allocation, a dividend could then be declared on the underwriting profit.

The Proposal Our proposal provides the following: AA rated Insurers Unique policy wording Premium collection arrangements Claims handling and settlement Maintain current relationship with tenants Average free policy Low deductibles Full cover in respect of vacant and voids Mulberry Insurance Services, Principal-led with 25 years of experience

Current Programme Tenants Prop Co Vacant / Voids Insurer Pool Re We do not propose to change your existing arrangement Tenants Prop Co Vacant / Voids Insurer Pool Re

Shareholder of captive The Proposal The captive position would look like this Tenants Prop Co Vacant / Voids Insurer Pool Re Shareholder of captive Captive as reinsurer

The Proposal Tenants Prop Co Vacant / Voids Insurer As you can see the captive sits behind the existing insurer and the tenants and Prop Co relationship with them remains unchanged Tenants Prop Co Vacant / Voids Insurer Captive as reinsurer

Capped with annual limit of premiums Proposed Programme Prop Co Insurer Captive takes GBP250K any one loss Capped with annual limit of premiums + GBP250K Terrorism 100% with Pool Re

Limits Captive accepts the first GBP250K of each loss The captive maximum possible loss in a year is GBP250k per annum in excess of the premium it will receive Assume market premium Gross GBP4m Captive premium expected to be GBP2.5m Expected claims GBP1.1m Profit range GBP1.4m to max loss GBP250k Above figures exclude broker fees and commission

Downside Risk Managed The worst possible scenario for the captive would be a loss of GBP250k in excess of premiums. This would require losses to be 150% higher than have been actuarially assessed.

Proposed Next Step We would be pleased to further explain this concept and answer your questions A feasibility study would confirm the viability Market negotiations Establishment

Property Owner’s Operating Captives

End of presentation