WIXLIB

StopLossGroupCap-ves

AndrewCavenagh ParetoCap-veServices Founder&ManagingDirector cavenagh@paretocap-ve.com

RegulatoryMatrix Statesregulate:– Fully- ‐insuredprograms(e.g.BlueCross)– Stoplosspolicies– MEWAs ERISAregulates:– Self- ‐fundedprograms DEregulates:– Cap-ves– RRGs ACAImpactsAll

GroupCap-ves–ThreeMajorStructures enefitcap-ves” Cap-veDirect RiskReten-onGroup FrontedCap-ve

Cap-veDirect Structure:– – stlargeclaims Pros:– Lowfric-onalcosts– Veryflexible Cons:– Limitedcapital– cile– Nowaiveronsecuri-esissues

RiskReten-onGroup(RRG) Structure:– RRGissuesstoplosspolicydirectlytoemployer/owner– argeclaims inallstates Cons:– Limitedcapital– Non- ‐domiciliarystatesnotalwayscoopera-ve

FrontedCap-ve Structure:– – AdmiYedcarrierreinsurespor-onofrisktocap-ve Pros:– Ratedbalancesheet– ApprovedinallstateswhereadmiYedcarrierisapproved Cons:– Nowaiveronsecuri-esissues– CostofratedbalancesheetofadmiYedcarrier

Contracts

StructureHighlights Eachemployer– Establishestheirownselffundedbenefitplan– Isissuedtheirownstoplosspolicy– EntersintotheirownTPAagreement Cap-veisac-ngasareinsurer– Cap-vedoesnotissueastoplosspolicy– Stoplosscarrier’spolicydefinesthecoverage

History&Evolu-on GrowthofFrontedModel– CreditRisk– Underwri-ngDiscipline– ReinsuranceSupport– RegulatoryAcceptance– CarrierInvolvement

Fully Insured ateralInsurance CompanyStop Loss and ClaimsReserveCaptiveClaim dFeesFullyInsuredPremiumsPaid

Fully Insured tal/CollateralInsuranceInsuranceCompanyCompanyLoss and top sLiabilityAdmin,Taxes,andFees

Traditional Self-Funded Health PlanSingleEmployerViewofFundingUnlimitedStop-Loss Insurance/ExcessPerClaimant 100KStopLossStop-loss insurance on claims 100K per claimant and aggregate basisEmployerClaimReserve/Self- andaggregatebasisMember AggregateStop LossAggregate Health Claims

Self-Funding with Group ss Insurance/ExcessStop-loss insurance on claims 250K per claimant and aggregate basisCollateral 250KStopLossPer ClaimantCaptiveMembers share claim risk on a per claimant andaggregate basis between 25,000 and 250,000 25KStopLossEmployerClaimReserve/Self- ‐insuredReten;onCaptiveAggregateStop sisAggregate Health ClaimsMemberAggregateStop Loss

StopLossGroupCap-ves “Tradi-onal”StopLossGroupCap-ves Mid- ‐MarketStopLossGroupCap-ves– CarrierSponsored– SeriesLLCs– MemberOwned

“Tradi-onal”StopLossGroupCap-ve ured s– s’deduc-ble Feeltheyareanaboveaveragestoplossrisk penditure

CarrierSponsoredGroupCap-ve -ve “TurnKey”solu-onforemployers Likelyeasiertostartnewprograms Employerslikelytoexperiencelesscontrolandautonomy

SeriesLLC Cap-veisownedbyathirdparty Canbe“turnkey”solu-onforemployers Likelyeasiertostartnewprograms Employerslikelytoexperiencelesscontrolandautonomy

MemberOwned Cap-veisownedbytheemployers Employershavemoreautonomy Greaterindependencefromstoplosscarriers Moredifficulttostartnewprograms Forma-onandcapitaliza-oncostsarelikelyhigher

StopLossGroupCap-vesToday Between30and50“programs” Programsvaryinsize,structureandgrowthstrategies pace Tremendous“buzz”amongstbrokersandTPAs

ValueProposi-on- ‐Employer Addressoneoftheirgreatestfrustra-ons Transparency Stability Control Onlypayforwhatyouuse Opportunitytoinfluencefuturecosts

ValueProposi-on- ‐Broker Abilitytobeproac-veonbehalfofclients mentcostcontainmentini-a-ves Differen-atetheagency

ValueProposi-on–StopLossCarrier ifficulttopenetrate BeYerstabilityandprotec-on Moreaggressiveintheirpricingthanonastandalonebasis Differen-atethemselvesfromtheirpeers

History&Evolu-on Challenges– Size– Underwri-ng– TargetGroups– Importanceof“TrueCap-veMentality”– Assump-onofautoma-callylowerclaims– “Youdon’tknowwhatyoudon’tknow”

ChallengestoStar-ngandMaintainingPrograms tcostrela-onshipNewness Maintaining:– Cri-calmass– Underwri-ngdiscipline

OutsideMarketInfluences Regulatory– 2014–carrierrenewals– 2015–PPACAmandates– Stateissues CAandCOexample Carrier– Riskpools– Levelfunding

LessonsLearned Smallprogramsarebad– Toomuchriskandvola-lity– Giveindustryablackeye � Understandselfinsurance– Providetrueleadershipandguidance Not“op-ons”

WhattheFuturewillHold–StubbedToes Someprogramswill“blowup”– Notenoughcri-calmass Starttoosmallandnevergetenoughmomentum Limitedmarketopportunity hpoten-al

WhattheFuturewillHold–RegulatoryConsidera-ons California’supcomingstoplossregula-ons:– 35,000specificdeduc-ble– AggregateaYachmentminimumof 5,000peremployee– velopment

WhattheFuturewillHold years– Mindsetofmidsizedfullyinsuredemployer IncreaseinHealthRiskManagement

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