energy insurance services, inc. trust owned health insurance

Energy Insurance Services, Inc.Energy Insurance Services, Inc.Trust Owned Health InsuranceTrust Owned Health Insurance

Formed in 1992 in Hamilton, BermudaWholly owned subsidiary of Energy

Insurance Mutual (EIM)Protected cell captive insurance

companyAt December 31, 2005, EIS’s policy

assets totaled $529.4 million and surplus totaled $58.8 million

Formed in 1992 in Hamilton, BermudaWholly owned subsidiary of Energy

Insurance Mutual (EIM)Protected cell captive insurance

companyAt December 31, 2005, EIS’s policy

assets totaled $529.4 million and surplus totaled $58.8 million

EIS Company ProfileEIS Company Profile

In August 2006, EIS’s Board authorized redomestication in the United States

Filed formal application with the S.C.Dept. of Insurance on September 18, 2006

Transition to South Carolina was completed December 1, 2006

In August 2006, EIS’s Board authorized redomestication in the United States

Filed formal application with the S.C.Dept. of Insurance on September 18, 2006

Transition to South Carolina was completed December 1, 2006

EIS Company ProfileEIS Company Profile

Pre-FundPay-As-You-Go

InsuranceOther Investments

Defined Benefit

VEBA

TOLI TOHI

Captive Commercial EIS

Defined Contribution

Eliminate Redesign Retain

Settle

Retiree BenefitsFunding OptionsRetiree BenefitsFunding Options



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: EliminateRetiree Benefits

Option: Eliminate



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: RetainRetiree BenefitsOption: Retain



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: RedesignRetiree Benefits

Option: Redesign

Plan TypesPlan Types

Defined Contribution Plans

Defined Benefit Plans

Defined Contribution Plans

Defined Benefit Plans



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: Defined Contribution

Retiree BenefitsOption: Defined Contribution



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: Defined Benefit

Retiree BenefitsOption: Defined Benefit

Funding OptionsFunding Options

Pay-As-You-Go

Settle the Liability

Pre-Fund the Liability

Pay-As-You-Go

Settle the Liability

Pre-Fund the Liability



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: Pay-As-You-Go

Retiree BenefitsOption: Pay-As-You-Go



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: Settle

Retiree BenefitsOption: Settle



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: Pre-FundRetiree Benefits

Option: Pre-Fund



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: VEBA Trust

Retiree BenefitsOption: VEBA Trust

Investment OptionsInvestment Options

Traditional (Other) Investments

Insurance

Traditional (Other) Investments

Insurance



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: Traditional

Investments

Retiree BenefitsOption: Traditional

Investments



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: InsuranceRetiree Benefits

Option: Insurance

Types of InsuranceTypes of Insurance

Trust Owned Life Insurance (TOLI)

Trust Owned Health Insurance (TOHI)

Trust Owned Life Insurance (TOLI)

Trust Owned Health Insurance (TOHI)



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: TOLI

Retiree BenefitsOption: TOLI



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: TOHI

Retiree BenefitsOption: TOHI

Forms of InsurersForms of Insurers

Captive Insurer

Commercial Insurer

Energy Insurance Services, Inc. (EIS)

Captive Insurer

Commercial Insurer

Energy Insurance Services, Inc. (EIS)



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: CaptiveRetiree BenefitsOption: Captive



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: Commercial

Retiree BenefitsOption: Commercial



Defined Benefit

VEBA

TOLI TOHI




Settle

Retiree BenefitsOption: EIS

Retiree BenefitsOption: EIS

EIS’s TOHI PolicyEIS’s TOHI PolicyEIS’s TOHI PolicyEIS’s TOHI Policy

OverviewOverview

Policies are a form of TOHI Policies are purchased by a VEBA VEBA is insured on a Stop Loss basis for a

portion of the claims experienced by participants

EIS provides noncancelable stop loss insurance coverage for the life of the covered population

The VEBA trust owns the policy, pays the premium(s) and receives payments as they become due

Retirees do not directly receive payment from EIS

Policies are a form of TOHI Policies are purchased by a VEBA VEBA is insured on a Stop Loss basis for a

portion of the claims experienced by participants

EIS provides noncancelable stop loss insurance coverage for the life of the covered population

The VEBA trust owns the policy, pays the premium(s) and receives payments as they become due

Retirees do not directly receive payment from EIS

Premium DeterminationPremium Determination

A function of:Company’s post retirement benefit

obligation (APBO)Qualified asset account limit (US

code section 419)Company’s financial strategyActuarial principalsPremium level is elective, subject to

the above

A function of:Company’s post retirement benefit

obligation (APBO)Qualified asset account limit (US

code section 419)Company’s financial strategyActuarial principalsPremium level is elective, subject to

the above

TOHI Funding Cash FlowTOHI Funding Cash Flow

RetirementPlan Sponsor

VEBA Trust EIS

Retirees

FundingContributions

TOHI ClaimsPayments

Premiums

Retiree Medical Benefits

Payments

Current Premium Allocation

Current Premium Allocation

5%

95%

General Account Separate Account

Policy Benefit Claim Payments

Policy Benefit Claim Payments

Annual policy claims pricingGuaranteed factorsCurrent factors

Annual medical claims of retirees covered under the policy

Policy asset performance and aggregate multi-year policy experience

Annual policy claims pricingGuaranteed factorsCurrent factors

Annual medical claims of retirees covered under the policy

Policy asset performance and aggregate multi-year policy experience

Annual Policy Pricing Parameters

Annual Policy Pricing Parameters

Guaranteed factors Current Factors Benefit Percentage

Guaranteed factors Current Factors Benefit Percentage

Guaranteed Factors

Current Factors

Attachment Point $ 1,000 $ 500

Benefit Percentage

49.98 % 80.00 %

Annual Maximum $ 1,499 $ 3,000

Lifetime Maximum

$ 29,980 N/A

Sample Policy BenefitPayment CalculationSample Policy BenefitPayment Calculation

Medicare($3,000)

Plan Deductible($1,000)

Pla

n C

oin

su

ran

ce ($

1,2

00)

Total AmountPaid to Providers

($10,000)

Attachment Point($500)

Total Plan ClaimsPaid by VEBA

($4,800)

Total Policy ClaimsReimbursed to VEBA

($3,000)

Polic

y C

oin

su

ran

ce ($

75

0)

Over Annual Max($550)

Plan Claims

Paid

($4,800) Policy

Benefit

($3,000)

Policy

Benefit

($3,000)

Benefit Percentage: 80%

Current Benefit Computation Factors

Current Benefit Computation Factors

Other EIS MBP and Policy Considerations

Other EIS MBP and Policy Considerations

Risk shifting In Helvering v. Le Gierse (1941), the United

States Supreme Court explained that a valid life insurance contract, for federal tax purposes, must involve risk-shifting and risk-distribution.

EIS TOHI program contains a reciprocal mechanism that distributes actual claims across separate accounts according to expected values

Program Advisory Committee Consults with EIS on any MBP issues

Risk shifting In Helvering v. Le Gierse (1941), the United

States Supreme Court explained that a valid life insurance contract, for federal tax purposes, must involve risk-shifting and risk-distribution.

EIS TOHI program contains a reciprocal mechanism that distributes actual claims across separate accounts according to expected values

Program Advisory Committee Consults with EIS on any MBP issues

EIS AdvantagesEIS Advantages

EIS is in business to meet the needs of its policyholders Does not have earnings per share or return

on equity requirements that impact the fees charged to the policyholders

TOHI program has been in operation for over ten years

Captive status allows EIS to take advantage of lower premium tax rates as compared to commercial insurers

EIS is in business to meet the needs of its policyholders Does not have earnings per share or return

on equity requirements that impact the fees charged to the policyholders

TOHI program has been in operation for over ten years

Captive status allows EIS to take advantage of lower premium tax rates as compared to commercial insurers

Merrill LynchMerrill Lynch

Investment Management Consultant for MBP # 15 since 1996

Responsibilities include assisting EIS and Policyholders with:Establishing investment policy,

obectives, asset allocations and guidelines

Selecting investment managersMeasuring, evaluating and reporting

investment performance

Investment Management Consultant for MBP # 15 since 1996

Responsibilities include assisting EIS and Policyholders with:Establishing investment policy,

obectives, asset allocations and guidelines

Selecting investment managersMeasuring, evaluating and reporting

investment performance

Merrill LynchMerrill Lynch

Approved Invesment Managers includes:Asset Classes: 9Firms: 25Products: 37

Assets Custodied at State Street Bank

Performance reported to Policyholders monthly

Approved Invesment Managers includes:Asset Classes: 9Firms: 25Products: 37

Assets Custodied at State Street Bank

Performance reported to Policyholders monthly

Investment InformationInvestment Information

Allocation

Asset Class Minimum % Maximum %

Conservative Fixed Income

14.14 % 28.41 %

High Yield 11.11 % 11.11 %

Large Cap Value 15.04 % 26.97 %

Large Cap Growth 6.59 % 22.70 %

Small Cap Growth 9.23 % 21.25 %

Small Cap Value 16.08 % 16.08 %

International 13.85 % 18.71 %

Current Policyholder Current Policyholder ExperienceExperience

Margaret Walsh, OGE Margaret Walsh, OGE EnergyEnergy

Current Policyholder Current Policyholder ExperienceExperience

Margaret Walsh, OGE Margaret Walsh, OGE EnergyEnergy

Retiree Plan SummaryRetiree Plan Summary

1993: Eligibility for retiree medical changed1994: Adopted carve out coordination with

Medicare2000: ● Eliminated Plan eligibility for any

employee hired after February 1, 2000● Increased / modified plan deductibles

2003: Increased retiree cost share

1993: Eligibility for retiree medical changed1994: Adopted carve out coordination with

Medicare2000: ● Eliminated Plan eligibility for any

employee hired after February 1, 2000● Increased / modified plan deductibles

2003: Increased retiree cost share

Claims Filing ProcessClaims Filing Process

Retireesand

ProvidersVEBA

Daily / Weekly Process

Submit Claims

Pay Claims

Report Claims

Fund Claims

ThirdParty

Admin.(TPA)

VEBA

Quarterly TOHI Process

Submit TOHI Claims ThirdParty

Admin.(TPA)

EISClaim

EligibilityValidated

TOHI Eligible Claims

Pay TOHI Claims

Ten Year HistoryTen Year History

Program RecapProgram Recap

TOHI through a captive offers significant advantages

Members are ownersProgram is receptive to its

Policyholders’ evolving requirements and business circumstances

TOHI contract is a competitive product for funding employee benefits

TOHI through a captive offers significant advantages

Members are ownersProgram is receptive to its

Policyholders’ evolving requirements and business circumstances

TOHI contract is a competitive product for funding employee benefits

FAS 106 Strategy Development

FAS 106 Strategy Development

Involve a cross section of the organization

Model the financial impact If EIS Policy purchase is a

consideration, complete a Policy mechanics review

Stakeholder consideration

Involve a cross section of the organization

Model the financial impact If EIS Policy purchase is a

consideration, complete a Policy mechanics review

Stakeholder consideration

energy insurance services, inc. trust owned health insurance

Documents

defined contribution

defined benefit slide

prefund slide

insuranceother investments

liability slide

retiree benefits option

contribution plans

benefit plans