1. Fronting – U.S. and Global What you need to know
JUN 2 - 4, 2014
Fronting – U.S. and Global What you need to know

2. Fronting – U.S. and Global – What you need to know Fronting Programs
Moderator:
M. Page Rouse, Chief Operating Officer, Granite Management Limited
Speakers:
John J. Saur, Underwriting Manager, L&F Holdings Limited
Ray Mattholie, Group Risk Management Adviser, Jardine Matheson Limited
Brian McNamara, Senior Vice President, AIG Global Risk Solutions

3. Fronting – U.S. and Global – What you need to know
Why use a Front?
Admitted coverages written (e.g., WC, Auto, employee benefits)
Need for rated paper
Policy issuance and claims handling services
Broad range of in-house expertise, including tax, insurance, legal, and regulatory
Enable clients to retain an element of risk, anywhere in the world, via any financing method

4. U.S. And Global Fronting Programs
Fronting Structures
Typical Captive Structure
Fronting Carrier Retains:
Fronting Fee
Taxes
XOL Coverage Premium (optional)
Owner/Insured
Fronting Insurer
Reinsurance
Captive
Captive Manager
e.g., dividend payments
Captive Retains:
Underwriting Profit
Investment Income
Retrocession
Retrocessionaire
Premium
XOL coverage, e.g., cat cover
Claims
Collateral e.g., LOC, Trust

5. Fronting Structures Example 1: Deductible Coverage $1,000,000 $100,001
Without a Captive
With a Captive
$1,000,000
$100,001
Insured Layer
Paid by Carrier
Insured Layer
Paid by Carrier
$1,000,000
$100,001
$100,000 $0
Deductible Layer
Paid by Insured
Deductible Layer
Paid by Insured and
Reimbursed by Captive
$100,000 $0

6. Fronting Structures Example 2: Net Line Captive
Insurer cedes to the captive only the portion of risk the captive wants to retain
Owner buys XOL cover from Insurer: $50M per occurrence & in the aggregate.
Insurer cedes $400K per occurrence, $800K in the aggregate to the captive (i.e., net line captive) and retains anything above this.
Owner/Insured
Fronting Insurer
Captive
Premium
Claims

7. Fronting Structures Example 3: Gross Line Captive
Insurer cedes 100% of the risk to the captive
Captive retains some risk.
Excess is ceded to retrocessionaire.
Fronting Insurer
100% QS
Captive
XOL
$90M xs $5M
Retrocessionaire

8. Fronting Structures Example 4: Group Captive (owned proportionately)
OWNERS (unrelated)
Company A
Company B
Company C
Company D
Fronting Insurer
Lines of business
ceded (e.g. , PI, EL)
Captive
(owned proportionately)
(Reinsurer)

9. L&F Holdings Limited L&F Holdings Limited John J. Saur
Underwriting Manager

10. L&F Holdings Limited
Captive group wholly owned by PwC network
Formed in 1998 following the merger of PW and C&L
Provides PII cover to all PwC network firms
No third party business
Monoline insurer (professional indemnity)

11. PwC at a glance
World’s largest professional services network – provides Assurance, Tax and Advisory services
Global network of individual member firms which are separate and independent legal entities
184,000 employees
157 countries
US$32.1 billion revenues in FY13

12. Headcount by region

13. L&F fronting arrangements
Global fronting arrangement with multinational insurer
Reinsurance of local risk
Fronted policies in 80 territories
Annual reviews to determine where fronts are required
Utilization of AXCO

14. Fronting challenges
Negotiations with local insurers
Local retentions
Fronting fees
Premium payments
Timely payment of premiums
Cash before cover
Transfer of reinsurance premiums
FX fluctuations

15. Fronting challenges
Transmittal of signed documents
Accuracy review of signed policies
Wording issues
Claims handling issues
Foreign language translations

16. Fronting challenges
Financial strength of local insurers
Are direct premium payments allowed?
Are direct claims payments allowed?
Dispensations
Local brokers can assist
Evergreen?

17. Fronting solutions
Centralized team to implement process globally
Utilization of brokers
Local
International
Communication

18. Global Fronting - an Asian Perspective
Ray Mattholie
Global Fronting - an Asian Perspective
Ray Mattholie
Jardine Matheson - Group Risk Management Adviser
Lockhart Insurance Company Limited - Director

21. Jardine Matheson Group Today

23. Jardine Matheson Group
So the new additions are:
Astra International-

25. Lockhart Insurance - Key Facts
1977 Lockhart Insurance Company Ltd. incorporated in Bermuda
1997 Lockhart converted to a Segregated Cell structure
Lockhart has a Bermuda Class 3 license. 25

26. Lockhart Core and Segregated Cells
Jardine Matheson Group
Lockhart Insurance Company Ltd.
*Core
Business A
Cell
Business B
Cell
Business C
Cell
Business D
Cell
Business E
Cell
Business F
Cell 26

27. Reinsurance Panel excess $yM
Lockhart PD BI Program
US$x00M
Reinsurance Panel excess $yM
Lockhart fronted
US$y0M
AIG fronted
Lockhart retained combined annual aggregate
BU(1)
$xM per occ.
BU(2)
$yM per occ.
BU(3)
$yM per
occ.
BU(4)
$zM per occ.
BU(5)
$zM
per occ.
BU(6) $zzM per occ.
BU(7)
$yyper occ.
Various local deductibles 27

28. Jardine Matheson- Fronting as part of Risk Financing strategy
Captive ‘Core’ Fronts for XS Program
Flexibility in choice of insurers
UK ‘Pool Re’ Terrorism
Special covers
The ‘Virtual Team’
- working with the Broker and Captive Manager

29. The role of the broker
Comprehensive knowledge of local requirements and regulations for every territory
Choice of Fronter to best meet Global footprint:
Ability to meet insured’s requirements
Past performance and ‘track record’
Form of representation in key territories, i.e. Subsidiary, Branch office or ‘Partner’
Creating Competition
Prepare a platform for communications, procedures, tracking reports etc.

30. The role of the broker and Captive Manager
Ensuring Performance Levels are maintained
Know when and how to escalate issues
Documentation
Reinsurance Agreements
Local policies
Evolving the Program to meet changing needs
Risk profile
Local regulations
Resolving problems as they arise
Money Flow

31. Hot Topics Money Flow Collateral Local issues in Asia Tariff rating
Cessions
Reserves
Cash before cover
Pure Front v Lead Market as Front
Continuity v Competition
- Building long term relationships

32. AIG Global Risk Solutions
Global Risk Solutions (GRS)
Your Global Partner for Non-Traditional Solutions to Unique Risks
Brian McNamara
Senior Vice President, Global Risk Solutions
Global Risk Solutions (GRS)
Global Risk Solutions (GRS)

33. The Businesses of Global Risk Solutions
Global Fronting
The Businesses of Global Risk Solutions

34. AIG Property Casualty – Global Footprint
42,000 employees who serve clients worldwide
51% of premiums written outside of the U.S. and Canada in 2013
Over $100 million average claims paid each business day in 2013

35. Global Fronting - Facts
Global Risk Solutions (GRS)
400+ multinational clients, predominantly in US, Europe and UK
Estimated $4.5 billion in gross premium
A business AIG has been in for over 50 years
41 GRS staff in Bermuda
Global Risk Solutions (GRS)