1. Taking Control with a Captive

2. Introduction Speakers: Scott Gemmell, Senior Vice President, Marsh Jon Schmieden, Director, Global Insurance & Risk Management, Alcon Laboratories Moderator: Roger Gillett, Member of the Bermuda Insurance Advisory Committee

3. Gaining Control of Insurance Spend Retain the premium for expected losses Capture profits that would otherwise be earned by insurers Reduce reliance on commercial insurers and avoid market fluctuations Create flexibility and provide cover for “uninsurable risks”

4. Risk Retention Decision

5. Understand the capacity and appetite to assume more risk Determine future expected losses Gauge market response Three Key Issues

6. Risk Tolerance is… “the financial ability to pay for own losses from cash flow, provisions and other available liquid funds as a result of risk related events”. OR “an acceptable amount of financial impairment that can be retained without a material impact on the business”. Risk Appetite is… “how much risk an organization is willing to retain.” Risk Tolerance & Appetite

7. Loss Analysis

9. LOSS ANALYSIS Determine Future Expected Losses

10. Loss Forecasting

11. Gauge the Market Response

12. Total Cost of Risk

13. ? Future Market Conditions

14. Take Control…. Captive Year 1 Captive Year 2 Captive Year 3 Etc……..

15. Theory meets Reality Jon Schmieden Director, Risk & Insurance Alcon Laboratories, Inc.

20. Alcon, Inc. the Largest Eye Care Company in the World!!!

21. William Conner 1907-1992 Robert Alexander 1912-1985 Founded in 1947, Fort Worth, Texas Founders: Alexander and Conner Unmet needs of ophthalmologists Small NYSE company in 1971 Nestlé 1977 IPO 2002 / Nestlé Novartis 2010

22. c. > 70 Affiliates (Legal Alcon Entities) 5 Research Centers 16 Manufacturing facilities

23. Alcon’s Product Spectrum Pharmaceutical Ophthalmic Otic & Nasal Consumer Products Vision Care, Optifree Vitamins Surgical Therapeutics IOLs Instruments Refractive/Laser

24. Alcon, Inc. Group Profile Major Divisions Sales $US Millions Pharmaceuticals $2,677 Consumer Products 825 Surgical Products 2,997 Total $6,499 Employees Headcount U.S.7,100 International8,500 Total Employees 15,600

25. Ownership Org. Chart Alcon, Inc. Switzerland Alcon International Entities Trinity River Insurance Co. Ltd. (TRICL) Bermuda Alcon Holdings, Inc. (AHI) United States TRICL (USA) Inc. Vermont

26. Trinity River Insurance Co. Ltd. (TRICL ) Bermuda domicile, since 1999 Over $650 million in assets Surplus over $250 million Annual Premiums over $40 million All lines of P&C direct or reinsured (international and US risks) All Lines of L&H internationally reinsured and reinsures US risks

27. TRICL (USA), Inc. Vermont domicile, since Jan. 2003 Over $47 million in assets Annual Premiums over $30 million All lines of P&C direct or reinsured Reinsure US employee benefits risks Reinsure Int’l employee benefits risks

28. Captive Structures “Direct Issue Captive” TRICL TRICL issues policies and arranges claims handling service and retains risk at agreed level. Alcon pays premium To TRICL ALCON

29. 1.Global Excess Product Liability (including extended discovery) 2.Global Property and Business Interruption (including earthquake) 3.Crime Insurance 4.Fiduciary Liability 5.US Trade Credit 6.Product Recall 7.Employment Practices 8.U.S. Medical Stop-Loss 9.US Workers Compensation Deductible Buyback 10. Punitive “Direct Issue Captive” Insurance Programs

30. Captive Structures “Reinsurance to Captive" Admitted Fronting Insurer AIG, Generali or Aetna TRICL Fronting insurer issues policies, arranges claims handling service and pays claims. Alcon pays premium to “Front” Reinsurance cessions to TRICL. TRICL retains risk at agreed level and pays claims within retention. ALCON

31. “Reinsurance to Captive” Premiums Invoiced Locally 1. Global Primary Auto Liability 2.Global General Liability (including Products) 3.Global Clinical Trials Liability 4.Global Transit Insurance 5.Japan Trade Credit 6.International Medical, LTD and Life Insurance 7. US Life and LTD

32. DOL Exemption Timeline March – April 2004 –Retain Consultant/fiduciary –Compile/organize data for DOL submission May 2004 –Request/obtain Vermont approval for benefits insurance –Submission of PTE application to DOL –Submission of supporting data to fiduciary July 2004 –Initial approval from DOL –Employee comment/review period August 2004 –Final PTE Approval

33. DOL Exemption Requirements Captive in the United States or U.S. Territory Captive has at least 1 year audited operations Fronting Insurer (A Rating) Independent Fiduciary Utilize Indemnity Reinsurance only Market rates/premiums Enhanced Benefits to Participants/Beneficiaries No commissions

34. Information Needed Captive audited financial statements Captive Pro Forma’s/Business Plan Captive Certificate of Incorporation & Articles of Incorporation Copies of reinsurance agreements Copies of current insurance policies Claims / Loss history (3yrs) Copies of SPD’s Copies of recent competitive bids (3yrs rate history)

35. Captive Advantages Reduced premium expenses for operating entities Reduced the group tax expense Supported business (certificates, M&A, etc.) Financed loss prevention Improved risk profiles through risk engineering and BCP Centralize data and consolidate risks globally Reduced administration and risk management expenses Driven down Total Cost of Risk Strengthened risk management organisation in terms of structure, processes and compliance 35