AMF Risk Management Solutions (AMF) Captive Insurance Proposal for Funding Group Medical Stop Loss Insurance For: A.M. Franklin Insurance Agency, Inc

AMF Risk Management Solutions (AMF)AMF Risk Management Solutions (AMF)

Captive Insurance Proposal for Funding Captive Insurance Proposal for Funding Group Medical Stop Loss Insurance For:Group Medical Stop Loss Insurance For:

A.M. Franklin Insurance Agency, Inc. (AMF)

300 Congress StreetQuincy, Massachusetts 02169Telephone: (866) 477-5263Fax: (617) 507-6425Cellular: (617) 645-5627

William G. [email protected]

AMF Risk Management Solutions AMF Risk Management Solutions Unique Stop Loss Business OfferUnique Stop Loss Business Offer

Traditional Stop Loss.Traditional Stop Loss. Stop Loss With Profit Sharing.Stop Loss With Profit Sharing. Innovative Captive Option – Innovative Captive Option –

Bermuda.Bermuda.

All Products/Services written with major All Products/Services written with major A+A+

Insurance Companies.Insurance Companies.

Who Provides the Major Services Under Who Provides the Major Services Under

the AMF Risk Management Solutions the AMF Risk Management Solutions Program?Program?

Insurance companies with an “A+” Insurance companies with an “A+” Best Rating.Best Rating.

The Marchmont Insurance The Marchmont Insurance CompanyCompany – Subsidiary of BF&M, – Subsidiary of BF&M, Bermuda’s largest health insurance Bermuda’s largest health insurance underwriter for citizens of Bermuda. underwriter for citizens of Bermuda. “A” Best Rating.“A” Best Rating.

Driving Healthcare Cost Down….Driving Healthcare Cost Down….The Need for Insurance CaptivesThe Need for Insurance Captives

To foster more healthcare competition

A. The D.O.L. is encouraging captive formations to fund employee benefits.

Well managed healthcare programs funded through captives assist employers in controlling healthcare costs.

Captives help stabilize reinsurance rates by offering additional capacity to underwrite risk.

To reward brokers, agents & consultants for the design and implementation of well managed healthcare programs for employers.

Healthcare Cost ManagementHealthcare Cost Management

Well Managed Healthcare Plan

$$$ Profits

Well Managed Healthcare Plan

$$$ Profits

Healthcare Cost ManagementHealthcare Cost Management

The AMF Risk Management The AMF Risk Management Solutions Solutions

Captive Program Captive Program

Operates Like Conventional Stop Loss Operates Like Conventional Stop Loss from the Employer’s Stand-Point. from the Employer’s Stand-Point.

Marchmont’s “Protected Cell” Marchmont’s “Protected Cell” Captive serves as the vehicle for Captive serves as the vehicle for Producers to share profits/assume Producers to share profits/assume risk.risk.

Tax advantages….but please consult Tax advantages….but please consult your tax advisor.your tax advisor.

Sample Of One TPA’s Sample Of One TPA’s Captive ResultsCaptive Results

Financial SummaryFinancial Summary

Gross Written PremiumGross Written Premium $ 93,498,751$ 93,498,751

Marchmont Specific/Aggregate ProfitMarchmont Specific/Aggregate Profit $ 16,049,791$ 16,049,791

Specific Pooling ProfitSpecific Pooling Profit $ 509,528$ 509,528

Total ProfitTotal Profit $ 16,559,319$ 16,559,319

Total Profit as a % of GWPTotal Profit as a % of GWP 17.7% 17.7%

Sample: Marchmont Risk StructureSample: Marchmont Risk Structure

$1,000,000/Person/Year

Insurance Company Risk

Marchmont/Producer

Risk

(80%)

Insurance Co.

Risk

(20%)

($7,500 to $500,000)

Employer Stop Loss Risk

Lives: 10 lives and greater.

Deductible: $7,500 to $500,000.

Captive Risk: Producer takes as little as 25%, or as great as 80% of Non-Insurance Company portion of $500,000 corridor; AMF takes the remainder (if any).

Lifetime Max.: $1,000,000 Per Person Per Year recommended.

* Set at this level for 2008 treaty year. May vary in future years.

$500,000$500,000**

No outside reinsurance on first $1,000,000. Our No outside reinsurance on first $1,000,000. Our carriers both front and reinsure.carriers both front and reinsure.

Aggregates – 20% & 25% corridors.Aggregates – 20% & 25% corridors.

PPO Database – over 2,200 networks evaluated by PPO Database – over 2,200 networks evaluated by AMFRMS for discounted rates.AMFRMS for discounted rates.

Aggregate only stop loss (wrap) available over other Aggregate only stop loss (wrap) available over other insurers “high deductible” major medical plans.insurers “high deductible” major medical plans.

Aggregate only stop loss available over self-insured Aggregate only stop loss available over self-insured dental plans with more than 50 employee participants.dental plans with more than 50 employee participants.

Additional Product Additional Product FeaturesFeatures

Functions & Responsibilities of Parties Functions & Responsibilities of Parties Involved in Marchmont ProgramInvolved in Marchmont Program

Employer’s Employer’s Self-Funded Self-Funded

Group Medical Group Medical PlanPlan

Insurance CompanyInsurance Company

• Provides Policy to EmployerProvides Policy to Employer

• Cedes Underwriting & Claims Cedes Underwriting & Claims Paying Function to AMFRMSPaying Function to AMFRMS

• Retains a Portion of RiskRetains a Portion of Risk

• Cedes Remainder of Risk to Cedes Remainder of Risk to MarchmontMarchmont

ProducerProducer

• Receive RFQ from Employers Receive RFQ from Employers & Forward to AMFRMS for & Forward to AMFRMS for

ProposalProposal

• Provides Funds to Provides Funds to Marchmont to back its Share of Marchmont to back its Share of

Risk and to Pay for Captive Risk and to Pay for Captive FeesFees

Marchmont Insurance CompanyMarchmont Insurance Company

• Assumes a Portion of Risk Backed Assumes a Portion of Risk Backed by Funds Held on Deposit from by Funds Held on Deposit from

Producer/AMFRMSProducer/AMFRMS

• Provides Accounting ServicesProvides Accounting Services

• Dividend Distributions to Dividend Distributions to AMFRMS & ProducerAMFRMS & Producer

AMFRMSAMFRMS

• Underwriters on Behalf of Underwriters on Behalf of Insurance CompanyInsurance Company

• Pays Claims In Accordance Pays Claims In Accordance with Policy/Employer Plan with Policy/Employer Plan

DocumentDocument

• Retains a Portion of Risk Retains a Portion of Risk through Marchmontthrough Marchmont

• Receives RFQ from ProducerReceives RFQ from Producer

• Collects/Premiums/Remits/FeeCollects/Premiums/Remits/Fee

ss

Illustration # 1Illustration # 1

40% GWP Loss Ratio40% GWP Loss Ratio

I. Gross PremiumsI. Gross Premiums $ $ 1,000,000.001,000,000.00

II. Program Expenses (37.5%) (Commissions 15%; Taxes 3%; II. Program Expenses (37.5%) (Commissions 15%; Taxes 3%; Fronting 5%; Block Cover 4.5%; MGU 10%)Fronting 5%; Block Cover 4.5%; MGU 10%)

$ $ (375,000.00)(375,000.00)

III. Net PremiumsIII. Net Premiums $ $ 625,000.00625,000.00

IV. Pooling Charges (Avg. 3% GWP @ $30,000 Spec)IV. Pooling Charges (Avg. 3% GWP @ $30,000 Spec) $ $ (30,000.00)(30,000.00)

V. Claims Expense (40% LR)V. Claims Expense (40% LR) $ $ (400,000.00)(400,000.00)

VI. Catastrophic Claims Reimbursement (Assumes 0%)VI. Catastrophic Claims Reimbursement (Assumes 0%) $ 0.00$ 0.00

(Claims above the $500,000 corridor)(Claims above the $500,000 corridor)

VII. Profits from $500,000 corridor (III – IV – V + VI)VII. Profits from $500,000 corridor (III – IV – V + VI) $ $ 195,000.00195,000.00

Total Estimated Profits as a % of GWPTotal Estimated Profits as a % of GWP 19.5% 19.5% GWPGWP

AMF Risk Management Solutions Medical Stop AMF Risk Management Solutions Medical Stop Loss Risk Sharing Captive Program ProjectionsLoss Risk Sharing Captive Program Projections

* Producer can assume 25% to 80% of risk. 80% of risk would * Producer can assume 25% to 80% of risk. 80% of risk would generate generate

an estimated Producer Profit/Loss of:an estimated Producer Profit/Loss of:

15.6% GWP15.6% GWP





II. Program Expenses (37.5%) (Commissions 15%; Taxes 3%; II. Program Expenses (37.5%) (Commissions 15%; Taxes 3%; Fronting 5%; Block Cover 4.5%; MGU 10%)Fronting 5%; Block Cover 4.5%; MGU 10%)

$ $ (375,000.00)(375,000.00)






VII. Profits from $500,000 corridor (III – IV – V + VI)VII. Profits from $500,000 corridor (III – IV – V + VI) $ 95,000.00$ 95,000.00

Total Estimated Profits as a % of GWPTotal Estimated Profits as a % of GWP 9.5% 9.5% GWPGWP


an estimated Producer Profit/Loss of:an estimated Producer Profit/Loss of:

7.6% GWP7.6% GWP





II. Program Expenses (37.5%) (Commissions 15%; Taxes 3%; II. Program Expenses (37.5%) (Commissions 15%; Taxes 3%; Fronting 5%; Block Cover 4.5%; MGU 10%)Fronting 5%; Block Cover 4.5%; MGU 10%) $ $

(375,000.00)(375,000.00)






VII. Profits (Loss) from $500,000 corridor (III – IV – V + VI)VII. Profits (Loss) from $500,000 corridor (III – IV – V + VI) $ $ (55,000.00)(55,000.00)

Estimated Profits (Loss) as a % of GWPEstimated Profits (Loss) as a % of GWP (5.5%) (5.5%) GWPGWP


a estimated Producer Profit/Loss of:a estimated Producer Profit/Loss of:

(4.4%) GWP(4.4%) GWP





II. Program Expenses (37.5%) (Commissions 15%; Taxes 3%; II. Program Expenses (37.5%) (Commissions 15%; Taxes 3%; Fronting 5%; Block Cover 4.5%; MGU 10%)Fronting 5%; Block Cover 4.5%; MGU 10%) $ $

(375,000.00)(375,000.00)






VII. Profits (Loss) from $500,000 corridor (III – IV – V + VI)VII. Profits (Loss) from $500,000 corridor (III – IV – V + VI) $ $ (255,000.00)(255,000.00)

Estimated Profits (Loss) as a % of GWPEstimated Profits (Loss) as a % of GWP (25.5%) GWP(25.5%) GWP

* Producer can assume 25% to 80% of risk. 80% of risk would * Producer can assume 25% to 80% of risk. 80% of risk would

generate an estimated Producer Profit/Loss of:generate an estimated Producer Profit/Loss of:Approximately Approximately

(7.50%) GWP(7.50%) GWP

AMF Production AMF Production RequirementsRequirements

Traditional Stop Traditional Stop Loss SourceLoss Source

*15% Profit Sharing *15% Profit Sharing ArrangementArrangement

AMF/Marchmont/Captive AMF/Marchmont/Captive Risk Sharing OptionRisk Sharing Option

Minimum Minimum Production: Production: $1,500,000$1,500,000

Minimum Production: Minimum Production: $1,500,000$1,500,000

Minimum Production: Minimum Production: $3,000,000$3,000,000

Renewal Renewal Persistency: 80%Persistency: 80%

Renewal Persistency: 80%Renewal Persistency: 80% Renewal Persistency: 80%Renewal Persistency: 80%

New Business New Business Growth: 3 Cases per Growth: 3 Cases per yearyear

New Business Growth: 3 New Business Growth: 3 Cases per year minimumCases per year minimum

New Business Growth: 5 New Business Growth: 5 Cases per yearCases per year

Requirements:Requirements: Complete premium/claims Complete premium/claims

history for initial history for initial assessment.assessment. Last look guaranteed on all Last look guaranteed on all

renewals & new business.renewals & new business. If AMF matches or beats If AMF matches or beats

competitor – accounts to competitor – accounts to

be placed with AMF.be placed with AMF.

Requirements:Requirements: Complete premium/claims Complete premium/claims

history for initial history for initial assessment.assessment. Last look guaranteed on all Last look guaranteed on all

renewals & new business.renewals & new business. If AMF matches or beats If AMF matches or beats

competitor – accounts to be competitor – accounts to be

placed with AMF.placed with AMF.

*applies to $500,000 risk corridor only.

Producer Cost To Producer Cost To ParticipateParticipate

Traditional Traditional Stop Loss Stop Loss

SourceSource

* Profit * Profit Sharing Sharing

Arrangement Arrangement AMF/Marchmont CaptiveAMF/Marchmont Captive

Producer’s Producer’s Financial Financial

CommitmentCommitment $0$0 $0$0

Captive Captive Rental FeeRental Fee

$25,000 first two $25,000 first two years, $40,000 years, $40,000 thereafter up to thereafter up to five yearsfive years

Preference Preference Shares Shares PurchasePurchase

$1,000 – $1,000 –

One time feeOne time fee

Risk CapitalRisk Capital1.8% to 7.5% of 1.8% to 7.5% of Gross Written Gross Written PremiumPremium

* Captive & Other Fees are charged against profits only if profits are generated.

Documents

AMF Risk Management Solutions (AMF) Captive Insurance Proposal for Funding Group Medical Stop Loss Insurance For: A.M. Franklin Insurance Agency, Inc