Collateral Reduction BUYOUT. Motivation

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1 Collateral Reduction Manufacturing A manufacturing company s captive insurer maintained letters of credit for its Employer s Liability risks. The parent company wanted to reduce the amount of collateral letters of credit provided by its captive to the insurance companies that front for it. Structure A buyout (loss portfolio transfer) of the underlying insurance policies of the captive with assumption by the insurer Term Until the expiration of all the liabilities transferred under the policy Coverage(s) Employer s Liability Limit Aggregate term limit of 15 million Retention 500,000 Eliminates the need for the company to post collateral to cover its risk

2 Effectively Managing Globally Retained Exposures Manufacturing and Services A large multinational company had historic retained liabilities (SIRs and corridor deductibles) in every division globally as part of its underlying policies. Also, as a result of M&A activity, the company had a redundant captive. The goal was to consolidate retained liabilities and the redundant captive s exposures into a single captive, and retain local policies. Structure Buyout of liabilities occurring over a historical seven year period Executed a court process to close down the redundant captive and transfer the risk to an AIG company which reinsured the risk to the company s remaining captive Term Not applicable Coverage(s) AIG provided coverage for General Liability and Product Liability for historic SIRs and corridor deductible exposures in EU and certain non-eu locations Local AIG companies provided General Liability and Product Liability policies based on local requirements in selected countries for historic SIRs and corridor deductibles Limit From $250,000 to $15 million excess of $10 million, and $5 to $30 million in the aggregate Retention Up to $500,000 per occurrence on SIRs Up to $15 million per occurrence and $30 million in the aggregate on corridor deductibles Facilitates closing the redundant direct-writing captive Provides local insurance coverage Enables the company to reserve centrally for all corporate retained risks

3 Facilitating the Dissolution of a Captive Hospitality Through an M&A transaction, a company inherited a redundant reinsurance captive. The management team of the company wished to effectively close down the captive. Structure Buyout (loss portfolio transfer) of the insurable risks, arranged by the acquiring third party upon sale of the captive The captive was sold to an unrelated third party The acquiring third party arranged a buyout and subsequently closed down the captive Term Incidents occurring during a 10-year period Coverage(s) Buyout of Workers Compensation, General Liability, Automotive Liability, and Products Liability Captive is sold to an unrelated third party All potential liabilities of the captive transferred from the captive through the third party to the insurer Third party is able to run off the captive losses and subsequently close down the captive

4 Multi-Year Settlement Payout Manufacturing As a result of a property loss, client was owed over $100 million under its two primary property policies. Rather than receive a lump-sum settlement, client wanted a portion of the proposed loss settlement ($74 million) paid out over 10 years to better match its future additional lease obligations. Due to the long term nature of the payment schedule, client wanted to transfer the fiduciary responsibility to a carrier with strong financials. Structure Buyout of any liabilities that the original insurers had to the client with respect to the one specified, covered loss under the two property policies in-force AIG agreed to pay out $74 million according to a set schedule of semi-annual payments over 10 years in exchange for the client s promise to release AIG from further liability, and to indemnify AIG for any other third party claims made against it regarding the assumed claim Term Ten years Coverage(s) Limit A novation/assumption of the original occurrence for property and business interruption (BI) insurance policies Settlement amount: $74 million The multi-year, semi-annual settlement payments coincided with the approximate additional annual business interruption extra expense that the client would incur in future periods as a result of the underlying property loss. The client was able to novate the two original insurance policies which were simultaneously assumed by a higher-rated insurer (AIG). The assuming insurer then settled the outstanding loss for a present value of $59 million, which the insurer converted into a 10-year cash flow settlement totaling $74 million.

5 Providing Added Value to Association Members Structure Term Hospitality Members of a national franchise association had been self-insuring auto liabilities incurred during the previous five-year period. Each year, franchisees needed to reserve for these potential liabilities, and as part of that process, had to reevaluate the amount that needed to be reserved. A buyout (loss portfolio transfer) that would enable the franchisees to transfer auto liabilities to a third party (AIG) Buyout of SIR liabilities occurring over a five year period Coverage(s) Guaranteed cost auto liability, third party bodily injury, and property damage Limit Retention Aggregate limit of $7 million for the five year period, sub-limited for each of the five years None Provides the association s members with guaranteed cost insurance purchased by the national franchise association Enables the franchise association to demonstrate added value to its members Transfers the franchisees exposure to loss volatility of these liabilities to a third party Eliminates the administrative burden of claims oversight for the franchisees

6 Disclosure AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional information, please visit our website at All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain property-casualty coverages may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds, and insureds are therefore not protected by such funds. Insurance coverage is account specific and is governed by actual policy language. This presentation does not constitute an offer to sell any of the insurance coverage or other products or services described herein. We do not provide legal, credit, tax, accounting or other professional advice, and you and your advisors should perform your own independent review with respect to such matters as they relate to your particular circumstances and reach your own independent conclusions regarding the benefits and risks of any proposed transaction or business relationship. American International Group, Inc. All rights reserved. American International Group, Inc. (AIG) is a leading global insurance organization serving customers in more than 100 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange and the Tokyo Stock Exchange. Additional information about AIG can be found at YouTube: LinkedIn: C031615