Confidential – Not for Distribution Efficient Reinsurance Management of Health Claims Portfolios October 29, th CCHFI, Turks & Caicos Islands

Confidential – Not for Distribution Outline Purpose of Reinsurance Case study Background Review the outcomes Consideration of alternatives Action steps 2

Confidential – Not for Distribution Purpose of Reinsurance Reinsurance is a specialized form of insurance where there is a transference of risk and it is commonly implemented for reasons such as: Protection against claims that are low in frequency but have high severity (e.g. large dollar/catastrophic claim amounts) Lack of excess capital to support a single large claim (or aggregate claims) that significantly exceed a certain threshold A large claim could be disproportionate to the size of the plan Desire improved claims predictability for pricing or budgeting purposes There is a lack of information to assess the extent of the risk being underwritten 3

Confidential – Not for Distribution Case Study - Background Stop-Loss arrangement that covers the claims in respect of an individual participant that exceed of a certain dollar threshold Threshold is set at approximately 15 times the average claim Reinsurance premium had recently increased significantly 4 % of Population% of Total Claim Claim less than 2 times the average88%42% Claim more than 2 times the average12%58% % of Population% of Total Claim > 3 times the average7%46% > 4 times the average5%38% > 5 times the average3%32% > 15 times the averageLess than 1%10%

Confidential – Not for Distribution Case Study – Is Reinsurance Efficient? No-Reinsurance With Reinsurance 5 $100 $89 $115 5 th Perc.Median95 th Perc. $105 $96 $110

Confidential – Not for Distribution Case Study – Alternatives Review the level of risk that is appropriate for the plan Is a higher reinsurance limit acceptable? If the stop-loss threshold we to increase by 50% (i.e. a higher threshold applies before the reinsurer pays a claim), the plan performance could improve by 2% (i.e. total costs under the plan could decline by 2%) Might an aggregate threshold be desirable? By selecting the appropriate aggregate stop-loss threshold the maximum exposure under the plan could have been capped at $105 (which is better than the higher exposure that is possible under the current reinsurance arrangement – see previous slide) 6

Confidential – Not for Distribution Case Study – Actions Consider whether reinsurance is helpful. What outcome is intended and can reinsurance help meet that goal? Review the cost drivers. What is causing claims to exceed a high threshold? Can plan design or targeted programs be effected to mitigate the high costs? Understand your level of risk. What level of risk is acceptable for your plan? What reinsurance arrangement is most suitable? Review the reinsurance arrangement. Can better rates be negotiated? Can guarantee periods be established? Review the market. Perhaps consider marketing the plan? Be better informed. Monitor plan performance and trends. 7

Confidential – Not for Distribution Case Study - Change in Large Claimants 8 Reinsurance Threshold Multiple 0.0 – – 1.0> – %0.2%0.0% 0.5 – %0.3%0.1% > % 0.3% Year Two Year One

Confidential – Not for Distribution Visit us: morneaushepell.commorneaushepell.com Follow us: 9 Thank You Howard Cimring Partner, Consulting Practice