1. Alternative Risk Transfer 21 May 2004
AURIMS
THOMAS MILLER RISK MANAGEMENT (UK) LTD

2. THOMAS MILLER RISK MANAGEMENT (UK) LTD
Current Issues
Uncertain market
Insurers have to make profit for shareholders
Insistence on good RM
Unwillingness to differentiate
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3. THOMAS MILLER RISK MANAGEMENT (UK) LTD
Why Retain Risk?
Choice - To take advantage of benefits
Necessity - Risk transfer (e.g. insurance)
is not available
Ignorance - Risk is not identified
THOMAS MILLER RISK MANAGEMENT (UK) LTD

4. THOMAS MILLER RISK MANAGEMENT (UK) LTD
Cost of Insurance
Elements of Insurance Premium
Cost of
Predictable Claims
Loading for
Expenses,
Commission
& Profit
(30%?)
State
Tax
(X%)
Catastrophe
Provision x x
Portfolio
Subsidy
THOMAS MILLER RISK MANAGEMENT (UK) LTD

5. THOMAS MILLER RISK MANAGEMENT (UK) LTD
Cost of Risk Retention
Cost of
Predictable Claims
Loading for
Expenses,
Commission
& Profit
(30%?)
State
Tax
(X%)
Catastrophe
Provision x x
Portfolio
Subsidy
THOMAS MILLER RISK MANAGEMENT (UK) LTD

6. The Insurer’s Objective
Premium
Profit
Break-Even
Time
THOMAS MILLER RISK MANAGEMENT (UK) LTD

7. Object of Risk Retention
Insurance
Premium
Retained Risk
Premium
Time
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8. Why look for an alternative?
To control your risk transfer programme – take that control away from insurers.
To reduce money ‘lost’ to insurers
To cost-effectively finance retained risk
These, and other benefits, can be achieved with an
appropriate captive
THOMAS MILLER RISK MANAGEMENT (UK) LTD

9. THOMAS MILLER RISK MANAGEMENT (UK) LTD
Types of Captive
Traditional (single parent)
Rent-a-captive
Association
Mutual
PCC
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10. THOMAS MILLER RISK MANAGEMENT (UK) LTD
Captive - benefits 1
Tax efficient smoothing of retained risk
Reduced insurance costs
Retention of:
Underwriting profit
Investment income
Access to reinsurance markets
THOMAS MILLER RISK MANAGEMENT (UK) LTD

11. THOMAS MILLER RISK MANAGEMENT (UK) LTD
Captive - benefits - 2
Uninsurable risks - capacity and flexibility
Reduced dependence on insurance market uncertainties:
Restricted cover
Claim declinatures
Insurer security
Formal risk management focus
THOMAS MILLER RISK MANAGEMENT (UK) LTD

12. Captive - disadvantages
Retention of underwriting losses
Capital committed to non-core business
External expenses:
Management
Regulatory
Management time
THOMAS MILLER RISK MANAGEMENT (UK) LTD

13. THOMAS MILLER RISK MANAGEMENT (UK) LTD
PCC STRUCTURE
Cell A
Cell B
Cell H
Cell G
PCC
Owner
(Core)
Cell C
Cell F
Cell D
Cell E
THOMAS MILLER RISK MANAGEMENT (UK) LTD

14. THOMAS MILLER RISK MANAGEMENT (UK) LTD
25/03/2017
PCC/SAC Features - 1
Established under Guernsey Protected Cell Company Ordinance 1997 Bermuda 2001
Single company with one:
Board of Directors
Memorandum and Articles of Association
Assets and liabilities of each cell separated by statute
THOMAS MILLER RISK MANAGEMENT (UK) LTD

15. THOMAS MILLER RISK MANAGEMENT (UK) LTD
25/03/2017
PCC/SAC Features - 2
Solvency test for main PCC - also for cells if reliant on cellular capital
Requires licensed insurance manager
Requires only one set of accounts
Documentation in name of PCC - not individual cells
THOMAS MILLER RISK MANAGEMENT (UK) LTD

16. PCC/SAC - Advantages Over Traditional Captives
25/03/2017
PCC/SAC - Advantages Over Traditional Captives
Reduced capital requirement
Lower running expenses
Reduced management time
THOMAS MILLER RISK MANAGEMENT (UK) LTD

17. Potential Applications (inter alia)
25/03/2017
Potential Applications (inter alia)
Funding insurance deductibles
Funding excluded/uninsurable risks
Public/Products Liability - Recall
Environmental Impairment/Pollution
Regulatory Changes - Effects on e.g. decomissioning costs
THOMAS MILLER RISK MANAGEMENT (UK) LTD

18. Establishment Requirements
25/03/2017
Establishment Requirements
Good loss experience
Good risk management
Effective risk identification and assessment
Financial ability to retain risk
Senior management commitment
THOMAS MILLER RISK MANAGEMENT (UK) LTD

19. THOMAS MILLER RISK MANAGEMENT (UK) LTD
PCC as a possible solution for AURIMS members?
PCC will allow
Each member to retain risk at own level
Loss records to be ring fenced
Reduced reliance on insurance
Real reward for improved RM
and will also provide an opportunity for an aggregated Reinsurance purchase, with resultant economies of scale
THOMAS MILLER RISK MANAGEMENT (UK) LTD

20. Controlled by operating deductibles
Programme Objectives
Loss Type
Treatment
Low Frequency –
High Severity
Catastrophe
level
Transfer
(Insurance?)
Capable
of self funding
Medium Frequency –
Medium Severity
Finance
High Frequency –
Low Severity
Controlled by operating deductibles
Retain
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21. THOMAS MILLER RISK MANAGEMENT (UK) LTD
25/03/2017
Retained at Operating Level
2,000
1,000
3,000
2,500
750
THOMAS MILLER RISK MANAGEMENT (UK) LTD

22. THOMAS MILLER RISK MANAGEMENT (UK) LTD
25/03/2017
Cell Retention
800 K
700 K
600 K
400 K
300K
2,000
1,000
3,000
2,500
750
Retained at Operating Level
THOMAS MILLER RISK MANAGEMENT (UK) LTD

23. THOMAS MILLER RISK MANAGEMENT (UK) LTD
25/03/2017
EML Reinsurance Need
16m
12m
10m 6m 4m
Cell retention
800 K
700 K
600 K
400 K
300 K
2,000
1,000
3,000
2,500
750
Retained at Operating Level
THOMAS MILLER RISK MANAGEMENT (UK) LTD

24. THOMAS MILLER RISK MANAGEMENT (UK) LTD
25/03/2017
16m+12m
= 28 EML
Reinsurance Purchase
EML Reinsurance Need
16m
12m
10m 8m 9m
800 K
Cell retention
700 K
600 K
400 K
300 K
2,000
1,000
3,000
2,500
750
Retained at Operating Level
THOMAS MILLER RISK MANAGEMENT (UK) LTD

25. THOMAS MILLER RISK MANAGEMENT (UK) LTD
Too late to do anything?
THOMAS MILLER RISK MANAGEMENT (UK) LTD

26. Who to contact for further advice?
25/03/2017
Who to contact for further advice?
Len Hanning
Managing Director
Miller & Associates
Chris Charman ACII ACI Arb
Thomas Miller Risk Management (UK) Ltd
 +44 (0)
THOMAS MILLER RISK MANAGEMENT (UK) LTD