Title Slide

JUN 8 – 10, 2015

www.bermudacaptive.bm

Presenters

Speakers:

• Jeremy Brasier, EVP, RFIB (Bermuda) Ltd.

• Christopher Ridge, President, Annapolis Consulting Group Inc.

• Jo Spittle, VP Underwriting, AmTrust Financial Services, Inc.

Moderator:

• Bob Forness, CEO, MultiStrat Re

• Introductions

• Key Topics– Captive Needs – Reinsurance Options– Reinsurance Solutions– “Candidate” Captives– Cost of Status Quo– Capital & Collateral Relief

• Q&A Panelists

• Q&A Audience

Captive Capital and Collateral - Agenda

Bob Forness, CEO, MultiStrat Re

MultiStrat Group

Participating QS Reinsurers

REINSURANCEREINSURANCEREINSURANCE

Jeremy started his career in London structuring reinsurance protections for syndicates, subsequently running the US division of a Lloyd’s broker. He moved to Bermuda in 2002 to join a specialist casualty reinsurance broker.

Joining RFIB (Bermuda) Ltd in 2010, Jeremy draws upon his broad P&C reinsurance experience to deliver structured solutions for the Alternative Risk sector.

RFIB is an independent international insurance and reinsurance broker headquartered in London, providing focused, effective and bespoke solutions for our clients.

Jeremy holds a Bachelor of Engineering degree in Ship Science from the University of Southampton, UK.

Jeremy Brasier, EVP, RFIB (Bermuda)

RFIB is an independent international insurance and reinsurance broker and is majority owned by management and staff. From our headquarters in the heart of the City of London's insurance sector and seven offices in major international centres, RFIB provides excellent service across its specialist lines of business. We provide focused, effective and bespoke solutions for our clients. We access a diversified book of business in significant developing economies and are renowned as a producer of innovative, profitable and specialist business to the London and international markets.

RFIB

Chris joined ACG in 2009 and has over 20 years of legal, executive management, consulting, regulatory compliance and technical experience in the field of alternative risk finance.

He has served as a lawyer, captive manager and consultant to captive insurers throughout their full life cycle - from formation to operational management to ultimate closure.

Chris holds a Law Degree from Loyola University, a Master’s Degree in Risk Management & Insurance from Florida State University and a Bachelor’s Degree in Business from the University of South Carolina.

Chris Ridge, President, ACG

ACG is an international consulting firm specializing in the run-off of captive insurance portfolios and companies and the resolution of complex claims and insolvency matters.

ACG expedites optimal outcomes through a veteran team of industry experts, including accomplished professionals in the fields of captive operations and management, run-off accounting, legal, bankruptcy and insolvency, finance and international jurisdictional analysis.

Annapolis Consulting Group (ACG)

Jo began her career in 2003 in London as a Casualty Reinsurance Broker.  In 2007 she moved to the US and worked across the full spectrum of the reinsurance and insurance business, specializing in professional liability.

In 2011 Jo moved to Bermuda to work as a casualty underwriter for AII Insurance Management Limited.

Jo graduated from the University of Buckingham in 2003 with First Class Honours, where she read Accounting and Financial Management.

Jo Spittle, VP Underwriting, AmTrust

AmTrust – Product Mix

Product Mix 1Q15

GWP 1Q15 $1.7 billion

Operates in Diverse, Lower Volatility Businesses

Workers’ Compensation

Other

Commercial Auto

Other Liability

Warranty

AmTrust – Who We Are

Shareholders’ Equity

$2.2 Billion

Total Capitalization

$3.1 Billion

Market Capitalization

$4.9 Billion

Sales Agents

9,400

Assets

$14 Billion

Years of Operation

17

Employees

5,000+

AM Best Rating

A

Countries

17

AmTrust – Financial Highlights

1Q15 Financial Highlights ($ in millions)

Total Assets • $14,811 ($1,224 in 2006)

Shareholder’s Equity • $2,463 vs. $1,581 1Q14 ($340 in 2006)

Annual Common Stock Dividend Per Share • $1.00 vs. $0.80 1Q14

Combined Ratio • 89.0% vs 89.9% 1Q14 (91.9% in 2006)

Operating Income 1 • $121.4 vs. 97.4 1Q14

Revenue from Service and Fee Business • $112.9 vs. $91.0 1Q14

Operating ROE 1 • 26.1% vs. 27.8% 1Q14 (21.3% in 2006)

Capital Strength• Generated over $1.6 billion in net income – 2006 through 2014• Raised over $1.3 billion in various debt and equity offerings since 2006

1 Please see the Non-GAAP Reconciliation at the end of this presentation for important information on this Non-GAAP measure

• Pros– Lower costs– Cash flow– Difficult coverages– Risk management– Higher profitability– Risk retention– Proactive loss control– Cost predictability– Access to market– Tax miminization and

deferral

Captive Pros and Cons

• Cons– Softening market– Requires expertise– Legacy exposures– Trapped collateral– Capital strain– Missteps visible– Overreliance on

reinsurance– Encourages bad

experimentation– Fronting/rating issues

Captive Life Cycle

Formation Growth Maturity Death

Rarely a straight line

Financial Benefits and Capital Efficiency

Financial Benefits

• Creates risk certainty - defines the risk box.

• Caps exposures within financial capabilities.

• Improves financial security of policy issued.

• Allows for transfer of unwanted / unanticipated exposures.

• ‘Big Brother’ support.

Capital Efficiency

• Increase capacity• Improves stability thereby

reducing capital drain• Enhances balance sheet• Risk limitation allows for

certainty and reduced capital allocation, providing for distributions to parent (to fund expansion, acquisitions, shareholder dividends, etc.)

Captive Needs Alternative Solutions

Capital Growth / Surplus Relief

Quota share cession – Reinsurer pays the same losses as the captive. Low basis risk.

Low level Excess of Loss – Reinsurer accepts severity, Captive retains frequency exposure.

Collateral Relief Quota Share partnering limits the collateral and ceding commission enhances retained economics.

Excess of Loss limits the volatility thereby reducing the collateral requirements.

Reinsurance Alternatives

Captive Needs Alternative Solutions

Self insured retention / Deductible Strain

Retention Reimbursement policies allow the frequency risk to be wrapped into a captive, with associated reinsurance potential, thereby manage year on year volatility.

Hard to obtain coverages Enhance the captive’s ability to tailor coverage's to protect the parent.Reinsurance typically structured to cap the unexpected or catastrophic outcomes.Offer capped risk transfer with substantial captive retention. Catastrophic covers can cross multi line exposures. Structured multi year placements.

Organic expansion Partnerships with other carriers with expertise or Fronting paper, reinsurer frequency risks. Known Event Insurance

Reinsurance Alternatives

Captive Needs Alternative Solutions

Return of capital Profit Commission, Commutation, LPT

Merger/acquisition/divestiture Commutation, novation, LPT, captive sale, Adverse Development Cover, merge captives for economy of sale.

Legacy/difficult claims LPT, After the Event, alternative dispute resolution, structured settlements, annuity, qualified runoff carrier.

Runoff/closure Specialists, high layer reinsurance, sale to third party, LPT, ADC, novation, commutation.

Reinsurance Alternatives

Captive casualty solutions can include– customized insurance or reinsurance– specialty/atypical/new risks – multiple lines and geographies– single or multiyear policies– quota share, aggregate excess of loss– risk sharing (otherwise recoverable, loss

corridors)– large profit sharing– balance in terms of premium to limit

Reinsurance Solutions - Casualty

Data requested from client– ground-up paid/case-incurred claims list– historical premiums/exposures and rate changes– client loss triangles (if available)– actuarial reserving or pricing studies (if available

Supplemental data– industry loss development triangles– industry increased limit factors/loss elimination ratios

Modeling/analysis– trend and develop ground-up claims to ultimate– ground up data to assess future exposures and calculate price– estimate expected frequency of claims using ground-up losses

and industry severity distributions

Reinsurance Solutions – Data Requested

Underwriting approach

• Review initial submission – appetite, structure, size, etc.

• Revert to actual with ground up data (when available)

• Build structure with actuarial and review pricing

• Discuss options with broker/client

• Submit to committee

• Drafts contracts, execute and bind

Reinsurance Solutions – Underwriting Approach

Typical characteristics of Captives looking for legacy claims solutions:

• long-tail business (WC, AL, GL, environmental exposures, etc.)

• discontinued lines of coverage

• underwriting years that are particularly heavily collateralized

• bad relationship with existing fronting carrier(s)

• parent company with need for cash (acquisitions, expansion, distressed, etc.)

“Candidate” Captives

Cost of maintaining the status quo:

• risk of adverse development (ultimate loss remains uncertain)

• trapped cash collateral

• encumbered lines of credit and LOC fees

• inability to cut ties with a fronting carrier

• administrative expenses (increased management, TPA, actuarial and audit fees)

• soft costs (employee time, program complication, etc.)

Cost of Maintaining Status Quo

Possible legacy claim transfer solutions

• Sale of Captive – when all assets and liabilities of a captive in run-off are sold to a third party.

• Commutation – when previously retained risk is sold back to the primary insurer (front).

• Novation – when previously retained risk is sold to a third party insurer.

• Reinsurance solutions – when loss obligations that have already been incurred and will ultimately be paid are ceded to a reinsurer.

Capital and Collateral Relief

Presenters Q&A - Moderator Facilitated

Audience Q&A – To Follow

Questions and Answers