1. CNLA - ALTERNATIVE RISK FINANCING Introduction of Concepts of Group Risk Financing JULY 10, 2012 Trevor Mapplebeck & Lyne Erwin

2. MARSH 1 12 September 2015 Agenda Background of CNLA HortProtect Program & Marsh –Program participation and performance –Risk Profile Group Funded Deductible –Goals of risk sharing –Structure –How claims are paid –Risk Management Benefits Next Steps Success Story from CURIE (Canadian University Reciprocal) –Presented by Keith Shakespeare

3. MARSH 2 12 September 2015 Background CNLA tendered the insurance broker services in summer of 2010 Marsh appointed September 15, 2010 Newly sponsored program exclusive to members launched October 15, 2010 with RSA –Member of CNLA and in good standing –Duly completed application in order to obtain quotation –Overview of current best practices including contracts –Claims details –Snow removal up to 40% of overall revenue

4. MARSH 3 12 September 2015 Program Overview 101 members participating in the program for a total written premium of $1,382,301 Membership breakdown –91 members less than $25,000 in annual premium (small) –5 members between $25,001 and $50,000 in annual premium (medium) –5 members over $50,001 in annual premium (large) Breakdown by line of business ­Property $ 615,047 ­Liability $ 173,119 ­Automobile $594,135 Incurred losses by line of business –5 slip & falls $38,180 = 22% loss ratio –5 property (theft, water damage, windstorm damage) $49,479 = 8% loss ratio –11 auto (collision and third party liability) $160,083 = 29% loss ratio Total incurred losses $247,743 for an overall loss ratio of 18%

5. MARSH 4 12 September 2015 Why Share Risk? Recognition of superior risk profile Long term control Better insulation from cyclical marketplace/hardening market Premium savings of higher retentions used to finance group fund (Member’s losses determine premium within the fund) Efficient/high-quality service from independent service providers Return of profits/investment income potential Cost of excess liability reduced with volume purchase Quality membership selection – minimum risk management standard to gain entry

6. MARSH 5 12 September 2015 Goals for Risk Sharing Develop critical mass to generate economies of scale Ensure ongoing best practices in terms of safety, compliance and risk management –Accountability within the risk sharing pool Develop a loss pool –Capitalize for expected and unexpected losses –Centralize loss control and claims data to evaluate loss pool – anonymous when shared –Create risk management education/awareness programs –Develop capital base to evaluate more formalized alternative risk financing programs (captive, reciprocal, mutual) –Dividends back to members based on their pro rata share of profits from positive results of group fund

7. MARSH 6 12 September 2015 Key Considerations Long term commitment Management of claims Governance/oversight of the Fund –Committee or full participation Set up costs – analysis and implementation Operating costs Insurance premium related costs Risk of adverse underwriting results Capitalization requirements Potential Letter of Credit requirements Risk transfer program excess of Group Fund will be marketed with the main program for Members not participating in the Group Fund This will ensure benefit of the group insurance program for Members choosing not to participate is not lost on the creation of the Group Fund Fund can remain open to Members who see future value in the Group Fund For Members not participating in a Group Funded program For Members participating in a Group Funded program

8. MARSH 7 12 September 2015 Group funded deductible – first stage of risk sharing Each member carries a “working layer” deductible Losses above deductible are paid out of a risk pool that is shared by all members –Premiums are based on risk and exposure –All members pay for losses of one another –Avoid trading dollars with insurers for predictable losses –Control over management of claims within the Group deductible –Investment income potential on funds not required for claims Group fund financial risk is capped Excess insurance needs are marketed as a group –All members marketed as a group - lower overall premium paid –Develop critical mass to generate economies of scale

9. MARSH 8 12 September 2015 Risk share through Group Funded Deductible - example Individual Excess cover $ 1M $100K $5K Group Risk Transfer to insurer for minimum common requirements Individual Member Deductible (each Member) Group funded deductible Excess of Individual deductible Group deductible aggregate (stop loss) $ XXM Maximum group exposure to ensure Group is not exposed to more than the Group risk appetite $250K

10. MARSH 9 12 September 2015 How claims are paid in group funded deductible Premium savings by taking group deductible used to capitalize the fund Paid by Insurer Paid by Fund and funded by OLA Group Member $ Amount of Claim Each Loss/Claim Group Deductible Individual Member Deductible Paid by Insured (Group Member) Stop Loss (Each Loss / Loss Aggregate) Insurance Payout Subject to Insurance Policy Limit (per claim & annual)

11. MARSH 10 12 September 2015 There are various fund structure alternatives which vary in terms of relative cost and regulatory complexity Cost Regulatory requirements Federal licensed Reciprocal Insurance Exchange Federal licensed insurance company Ontario licensed Reciprocal Insurance Exchange Ontario licensed insurance company/mutual Captive insurance company Self administered Loss Fund / Group Funded Deductible Low High Licensed insurance companies and reciprocals carry significant regulatory and reporting requirements –Minimum capital requirements –Annual financial filings –Committee reports (audit, etc.) –Actuarial reports These additional requirements and complexities result in higher operating costs –Licensed insurance companies can cost several hundred thousand dollars to operate annually Captive insurance companies (“captives”) require feasibility costs ($35K - $50K), implementation costs ($25 K-$30 K) as well as annual operating costs (~$100 K), but have relatively low regulatory requirements, especially if incorporated offshore Self-administered loss funds have the lowest operating cost of any alternative structure ($20 K-$50 K) and have little regulatory requirements outside of income reporting for tax purposes Relative program comparison

12. MARSH 11 12 September 2015 Each alternative program structure addresses growers needs differently Self- administered loss fund Captive insurance company Reciprocal insurance exchange Licensed insurance company Regulated entity, licensed under a regulatory body Extensive, detailed documentation (financial reports, actuarial reports, etc.) Need to hire and maintain own staff Freedom of operation (Offerings/coverage, limits, premiums, capital levels, etc.) Set up and operating costs (focus member contributions on loss funding) Lean operational structure Responsiveness of fund to losses (timeliness of loss payments) Fund solvency requirements Member “premiums” are tax deductible Relative program comparison

13. MARSH 12 12 September 2015 Risk Management Benefits 1. Flexibility in program design 2. Broader and simpler insurance contracts 3. Captive funding operational expenditures geared to risk improvement 4. Advanced premium allocation 5. Control of risk management (i.e. loss control) 6. Deductible buy-downs 7. Bargaining strength 8. Coverage for uninsurable risks 9. Less dependence on commercial insurers 10. Segregation of funds

14. MARSH 13 12 September 2015 Evolution for risk sharing – Next Steps Comfort with sharing risk with other companies –Minimum risk management, safety, compliance standards –Cultural/philosophical business management meeting of the minds –Appetite to retain risk –Captive advantages – greater than 10 Members can potentially create additional benefit Creates –Long term control –Better insulation from cyclical marketplace/hardening market –Member’s losses determine premium –Return of profits/investment income potential –Cost of excess liability reduced with volume purchase –Quality membership selection – minimum risk management standard to gain entry Group funded deductible is the least costly and administratively time consuming alternative risk finance option to develop and manage but can serve as a proof of concept for risk sharing before evolving to a captive insurance company The answer to that is would need to approach the markets with the potential structure and determine if the combined premiums from the group fund and transfer are achievable to be no greater than the current cost structure. Next steps is to determine if a committee of growers works with Marsh to evaluate the option, and/or if all prospective interested members participate in a follow on meeting to get more into the details. –Obtain copies of policies –Claims experience –Premiums

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