The Story of Three Children‘s Hospitals in Various Stages of Captive Development

Alliant Insurance Services, Inc. Moderated by: Todd Hagemeier Alliant Insurance Services, Inc. Managing Director, Executive Vice President

Director Insurance Services Keith Lindloff Children‘s Health Director Insurance Services

Our transition to a Risk Bearing Captive Story Children‘s Health Our transition to a Risk Bearing Captive Story

Children’s Insurance Company (CIC) Parent Organization: Children’s Medical Center of Dallas Independent pediatric hospital Two full service hospitals, total of 442 beds in operation 3 subsidiary physician organizations employing appx 100 physicians Level I Trauma Center; Level III NICU Affiliated with UT Southwestern Medical School

Children’s Insurance Company (CIC) Captive created in 1990 to provide access to reinsurance markets, esp. Employers’ Reinsurance Domiciled in Vermont due to Board concerns about public perception Issued policies for excess Professional & General Liability, 100% reinsured Retained no risk for first 25 years

Children’s Insurance Company (CIC) Children’s Medical Center has been a very conservative organization with regard to risk as well as finance Children’s Medical Center has been a financially strong organization – well-supported by community; favorable reimbursement structure Successful tort reform in Texas lowered the temperature regarding Professional Liability

Children’s Insurance Company (CIC) Challenge: Developing the organizational will to assume more risk Elements that came together: New Strategies Continued increase in primary HPL premium despite excellent loss history New CFO Desire to remove costs from Operations budget

Children’s Insurance Company (CIC) Jan. 1 2014 – Assumed primary Professional and General Liability in CIC Near term plans: Add employed physicians Issue ‘deductibles’ policy to consolidate budgeting for all losses within deductibles Review of all coverages with an eye to utilizing CIC

Cook Children‘s Health Care System Karen A. Wardell Cook Children‘s Health Care System Associate General Counsel

Our Captive Success Story Cook Children‘s Our Captive Success Story

Cook Children‘s Health Care System enter picture Cook Children’s Health Care System is a not-for-profit, pediatric health care organization based in Fort Worth, Texas

Cook Children’s Health Care System W.I. Cook Foundation, Inc. Cook Children’s Health Care System Cook Children’s Home Health Physician Network Medical Center Cook Children’s NE Hospital, LLC Cook Children’s Surgical Center, LLC [Plano] Health Plan Indemnity Company Cook Children’s Health Services, Inc. Rosedale Office Building, Inc. 501(c)(2)

Cook Children‘s Indemnity Company CCIC was licensed & capitalized in 2002 in response to a hardening insurance market CCMC historically maintained a self-insured trust for its HPL and purchased excess insurance Its physician group purchased first dollar coverage In the early 2000’s, we started seeing declining capacity for medical malpractice Carriers abandoned the market and/or refused to insure certain medical specialties In 2002, the cost of insuring our 200 employed physicians was over $5M Primary purpose was to provide a vehicle to self-insure the medical malpractice exposure of Cook Children’s Health Care System & its employed physicians

Coverage and Limits Hospital Professional Liability claims-made policy with pre-paid tail coverage $5M per claim/$20M aggregate limits excess reinsured up to $70M funding is actuarially determined at expected level or greater plus budgeted administrative expenses retrospectively rated premiums Physician Professional Liability $1M/$3M limits per physician/mid-level provider funding is actuarially determined and funded at the expected level or greater plus budgeted administrative expenses General Liability occurrence policy $1M per occurrence/$5M aggregate limits Managed Care E&O claims-made policy no claims in the 5 years it was there removed from the captive in 2010

Premium paid to CCIC since December 2002 - $92M Premium net of reinsurance - $80M (Amount actuaries say we should have paid) Total paid losses to date - $6.8M Dividend/retrospective premium returned to System - $68M

HOW? Medical malpractice tort reform enacted in Texas in 2003 made it easier to accurately predict future costs non-economic damages caps at $250,000 per occurrence for any and all non-institutional health care providers (most commonly, physicians) with a second $250,000 cap per occurrence for each health care institution with a limit of $500,000 total for all health care institutions 2 year statute of limitations 10 year statute of repose all wrongful death damages remained capped at an indexed cap, which is about $1.8M and includes punitive damages Apology & disclosure policy developed and implemented See Lee Taft, Apology & Medical Mistake: Opportunity or Foil?, 14 Annals of Health Law 55 (2005).

Texas Children‘s Hospital Melissa Murrah Texas Children‘s Hospital Director – Risk Management

Texas Children’s Our Super Captive Insurance Company Story

Overview of Texas Children‘s Hospital Groundbreaking ceremonies were held on May 23, 1951 for a three story, 106 bed pediatric hospital Teaching affiliation established at that time with Baylor College of Medicine that is still in place Neurological Research Institute, the world’s first basic research institute dedicated to childhood neurological diseases, opened in 2010 The Pavilion for Women, providing women, mothers and babies with a full continuum of high quality healthcare, opened in 2011 EPIC installed system wide in 2012 In 2013, Texas Children’s had 3.2 million patient encounters and performed 26,000 surgeries Today - 644 beds and 230 employed physicians

Overview of TCH Insurance Company, Ltd. (“TCHICO”) Licensed in Cayman in March of 1995 Holds an Unrestricted Class B insurer’s license Currently writes: Professional / General Liability Umbrella / Excess Liability – Integrated Form Property and Business Interruption Property coverage has been written on a quota share basis since 2012; no losses to date Over $350,000 of patient safety grants have been awarded to date

Texas Children’s ERM Initiative Texas Children’s has a very robust and interactive ERM initiative that started in 2012 Board oversight of our ERM initiative is provided by the Chairman of our Risk Management & Insurance Committee Our ERM protocol involves the use of a Risk Register, a Heat Map and Aggregate Risk Scores that lead to a red, yellow or green ranking for each enterprise risk that is identified We are tracking fifty-two enterprise risks, including a “Fine Fifteen” TCHICO is an integral part of our Risk Mitigation Strategy and Action Plan and the possible utilization is always a part of our analysis

Sample ERM Risk Register Heat Map

Other Possible Risk Areas for TCHICO Being Investigated HMO Reinsurance Medical Stop Loss Biomedical Maintenance Property and Casualty Deductibles Regulatory (Billing E&O) Risk Property (Higher Limits) ROCIP Coverages Builder’s Risk Primary Casualty Excess Liability

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