CARE-Product Features and Benefits 20062012

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CARE – (Contingent Asset Relief Equity)

Re/Insurance Industry – Challenges in the Global Markets.

The rapidly changing regulatory environment, with the Risk-based Capital Regulation, Enhanced MinimumCapital Requirement, the Capital Adequacy and Solvency Margins, has resulted in either mergers and

acquisitions or insurers as well as reinsurers finding it difficult to retain the books of business and cutting on

underwriting portfolios.

In their report Capital Adequacy and Insurance Risk-Based Capital Systems, J. David Cummins and Richard D.

Phillips observe:

“The insurance industry is heavily regulated in every developed economy worldwide, with

regulation focusing primarily on solvency. During the past fifteen years, nearly every major

regulatory jurisdiction has either revised or is considering major revisions in its regulatory system

with respect to solvency surveillance, with an emphasis on introducing risk-based capital regulation.

Risk-based capital (RBC) regulatory systems for insurance were first introduced in Canada and theU.S. in 1992 and 1994, respectively. Japan introduced its Solvency Margin Standard in 1996, and

Australia adopted a risk-based system in 2001. The United Kingdom adopted its “enhanced capital

assessment framework” in 2004, the Netherlands introduced a new system in 2006, and

Switzerland adopted the Swiss Solvency Test (SST) in 2006. Efforts are currently underway to

harmonize solvency regulation in the European Union (E.U.) with the implementation of the

Solvency II risk-based capital standards anticipated in 2012 to replace the Solvency I system that

was adopted in 2001. In the U.S., the National Association of Insurance Commissioners (NAIC)

announced its Solvency Modernization Initiative in 2008, which will include a reevaluation of the

U.S. RBC system, among other objectives.”

The development and testing of Solvency II regime has seen substantial attention in the last few years,including concerns, controversies and commentaries, but the fact remains that in the changing dynamics of the

industry, Solvency II promises to be the catalyst for change within the insurance industry worldwide.

According to the Briefing Notes “Insurance Governance Leadership Network” published on Feb 09,2012 by

Tapestry Networks, Inc ·

“The increasingly important European dimension: Many participants view the European Union (EU)

as even more influential in insurance than it is in banking – for example, through the EU directive

known as Solvency II, which is intended “to establish a revised set of EU-wide capital requirements

and risk management standards that will replace the current solvency requirements.”... The newly

established EIOPA, which has substantial input into Solvency II, may be more important for the

industry than its counterpart, the European Banking Authority (EBA) is for the banking industry...“Increasingly, the [supervisors] of the world will simply be implementing EIOPA’s policies,” predicted

one director.”

And Guy Carpenter’s report “Succeeding Under Solvency II - Pillar One: Capital Requirements” states:

“ Despite its nominally European focus, Solvency II presents a wide range of considerations - and

opportunities - to insurance entities worldwide. This new regulatory framework will enact a

fundamental change in the way the European insurance industry looks at risk and risk management

practices,… All businesses that have operations, subsidiaries or affiliates in Europe, write coverage

in Europe or do business with insurers in Europe should be preparing now for these wide-ranging

changes.”

Taking Solvency II as the benchmark, and keeping in firm view the fact that same or similar regulations will be

promulgated around the globe, the cost of doing business will have a new meaning for insurance and



Page 2 of 14

reinsurance companies, with the additional load of implementation and maintenance of capital adequacy. In

two of Guy Carpenter research reports “Succeeding Under Solvency II - Pillar One: Capital Requirements” and

“Impact Of Solvency II On Primary Insurance Companies: Cost Considerations”, it is stated that

“The cost of maintaining required levels of capital will rise substantially under the Solvency II regime. Thecapital requirements promulgated by QIS 5 for non-life insurers (before diversification) have been raised

overall by approximately 15 percent over QIS 4 and are approximately three to four times greater than

Solvency I capital requirements.... Consequently, the relative profitability and economic attractiveness of

specific products will change under the new solvency regime.”

And

“Implementation costs are a major additional expense in an environment where insurers are already

struggling to maintain profitability during an inopportune time in the underwriting cycle. The ultimate

goal of the Solvency II initiative is to create a more secure and safe environment for policyholders.

However, the substantial costs to the industry as a whole are such that the more immediate impact may

be the exact opposite of what was intended.

Indeed, the overall implementation costs for Solvency II are difficult to overstate. A November 2010PricewaterhouseCoopers LLP (PwC) survey indicates that the industry-wide Solvency II implementation

cost is on course to exceed the European Commission’s estimate of EUR3 billion (1). Lloyd’s of London is

expecting to spend GBP250 million in total on implementation, with annual ongoing Solvency II-related

expenses of about GBP60 million to GBP70 million. Multinational insurers in the United Kingdom have set

aside roughly GBP100 million for Solvency II implementation.”

A Morgan Stantley + Oliver Wayne research report titled “Solvency 2: Quantitative & Strategic Impact - The Tide

is Going Out “states:

Our company analysis suggests that non-life

companies will see the greatest increase in capital requirements and the most reduced solvency ratios.

Exhibit 22 shows the change in the solvency ratio

between Solvency 1 and Solvency 2 for the four

fictitious companies used in our model, which

include a diversified reinsurer (Fantasy Re) and a

pure primary non-life company (Accidental P&C).

Both of these companies suffer from a larger drop in

regulatory solvency coverage than the pure life

company (Mystic Global Life) and the composite

(Mosaic Composite).

This will not come as a surprise to many of the larger companies that already manage to risk-based

rating agency capital models. Solvency 1 non-life regulatory capital requirements have long been

recognised by the rating agencies as an inadequate measure of risk.

We expect the major reinsurers, in particular, to maintain good Solvency 2 buffers on the standard

QIS5 model, and this may be further improved through the use of internal models. As we discuss

below, reinsurers benefit from a strong diversification benefit.

However, it is possible that many non-life insurers find the capital requirements quite steep –

particularly given the increase in many of the capital charges for non-life risk between QIS4 and

QIS5. Companies that do not have the resources or data to use company-specific factors, full or

partial internal models may be at a particular disadvantage.”

0%

50%

100%

150%

200%

250%300%

350%

Mosiac

Composite

Company

Mystic Global Life Fantasy Re. Accidental P&C

Solvency I Sovency II

http://www.gccapitalideas.com/tag/underwriting

http://www.gccapitalideas.com/tag/solvency-ii

http://www.gccapitalideas.com/tag/solvency-ii

http://www.gccapitalideas.com/tag/underwriting



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GOLDASSURANCE ASSET MANAGEMENT COMPANY’S CARE.

In light of these impending Enhanced Capital Adequacy / Solvency requirements, it has become crucial for

Re/Insurance companies to employ innovative methods and approach to meet regulatory requirements while

minimizing the cost of additional capital, for retaining the current business, in addition to increasing market

penetration and profits.

Goldassurance Asset Management Company, registered in the Federal Territory to Labuan has been structured

to act as Financial Services Managers to cater to this need of the hour.

Aiming to exceed the expectations of our investors and partners in generating regular income by best possible

utilization of our capacity; our revenue comes from offering asset support and capacity enhancement, against

premium management, to major insurance/reinsurance companies, for them to underwrite larger portfolios

and increase profitability. In essence the assets are used to provide a proportion of the security underpinning

diverse insurance /reinsurance policies and share in the returns associated with underwriting that policy. For

the comfort of our clients this capacity/ solvency support is confirmed by a bank on behalf of Goldassurance

Asset Management Company Limited.

Included in our basket of novel, customer- oriented products is CARE (Contingent Asset Relief Equity). CARE is a

Contingent Capital structured instrument, to support insurance/ reinsurance companies in their time of need,

towards addressing an opportunity inflow of any book of business. They can now pick any book of business

without worrying about capacity limitations

John C. Coffee, Jr. feels that

“Contingent capital is an idea whose time is coming—both within the United States and

internationally. Its special virtue is that it responds to the problem of high risk-correlation among

major financial institutions without relying on the ability of regulators to always make wise and

farsighted decisions in politically heated crises. Although use of contingent capital may be costly,

this cost is another way to tax the externality that arises when creditors come to believe that some

financial institutions are “too big to fail.”” ( Systemic Risk After Dodd-Frank: Contingent Capital

And The Need For Regulatory Strategies Beyond)

According to the article title Contingent Capital vs. Contingent Reverse Convertibles for Banks and Insurance

Companies by Christopher L. Culp, published in Journal of Applied Corporate Finance, a Morgan Stanley

Publication in Fall 2009

“Contingent capital is a type of put option that entitles a company to issue new paid -in financial

capital on or before some future date. Unlike paid-in financial capital, the contingent capital

p

u

r

c

h

a

s

e

r

/

i

s

s

u

er

Insurer orReinsurer Investor

Insurer or Reinsurer

(Option Buyer)

Investor

(Option Writer)

GAAMCO

Put Option

Securities

Securities

Cash

Cash

Simplified Paid-in Capital Structure

Simplified Contingent Capital Structure

Put Option Fee

Source: Modified according to Munich Re (2001).



Page 4 of 14

receives no cash and issues no new securities when the facility is placed —and, indeed, it must

periodically pay a premium (called a “commitment fee”) to the providers of the contingent capital.”

Though a relatively new concept and product, the structure of CARE is not very complex or complicated. In the

words of Robert P. Hartwig and Claire Wilkinson in their article “An Overview of the Alternative Risk Transfer

Market”:

“Contingent capital is similar to a line of credit except that access to the capital is conditional

(contingent) upon the occurrence of (i) an insured event and (ii) an impact of a predetermined size

on some measure of company financial performance (such as certain financial statement items)

(Culp 2005).”

And Christopher L. Culp in “Contingent Capital: Integrating Corporate Financing And Risk Management

Decisions”

“Like any ordinary option, cont ingent capital can be characterized by a number of key features: (1)

the underlying asset (or just “the underlying”); (2) the exercise style of the option (European or

American or other); (3) the time period (or “tenor”) of the option; and (4) the strike price. In

addition to these standard attributes of normal options, contingent capital facilities also often

contain “barriers,” or “second triggers,” that are linked directly to their risk management role.”

Though Contingent Capital often either compliments or substitutes reinsurance but

“Contingent capital is a relatively new type of convergence product, connecting insurance and

capital markets, but its use should be considered as an excellent element of post-loss funding ...

Unlike insurance-linked securities, which contain aspects of insurance/reinsurance and securities,

contingent capital facilities are structured strictly as funding/banking facilities or securities

transactions, with no el ement of insurance contracting.” (Drs. Véronique Bruggeman, Capital

Market Instruments for Catastrophe Risk Financing)

Further strengthening the concept Christopher L. Culp states in his article Catastrophe Reinsurance and Risk

Capital in the Wake of the Credit Crisis:

“Risk capital is an essential component of a P&C insurer’s economic balance sheet – especially in

years like 2008 – because it helps insurers cover unexpected losses that jeopardize the capacity of

insurers to honor their claims payment obligations and preserve their ability to underwrite new

business. “External” risk capital is provided by firms like reinsurance companies, whereas “internal”

risk capital is provided by investors in the debt and equity securities issued by the insurance

company ... Risk capital may also either be paid-in or contingent ...

As such, the decision of how much risk capital to hold and in what form must be weighed carefully

by investors in P&C insurance company stocks ...At no time have these decisions been more

important than in today’s environment ... Losses by several reinsurers, however, have precipitated

ratings downgrades, balance sheet weakness, and capacity reductions, all of which also should

impact an insurer’s choice of an external risk capital provider...In our view, i t is critical for insurers

to compare external and internal risk capital in a consistent conceptual framework. The essential

first step in that undertaking is to frame properly the question to be answered. The right question to

ask is not “How much reinsurance should we buy?”, but rather “How much reinsurance should we

buy from external parties instead of from investors in our own securities, from whom, and in what

form?””

thus not only differentiating Contingent Capital from Reinsurance but also clarifying its complimentary and

substitute nature.



Page 5 of 14

Insider Quarterly observes the Rise of contingent capital stating:

“ Scor provided a public demonstration of the contingent capital model when the first EUR75mn

tranche of its EUR150mn contingent facility with UBS was triggered by Q1 cat losses in July...The

French reinsurer lined up the contingent capital facility with UBS - to which it ultimately issued

shares at a pre-agreed strike price - late last year as an alternative source of retro protection….And IQ understands that contingent capital-style transactions have been pursued by a

wide array of reinsurers with their bankers, with at least half a dozen deals at various stages of

completion. According to sources, the facilities - which typically see carriers pay up front to secure a

mezzanine layer of capital below senior debt to be drawn down under pre-agreed triggers - are

being peddled by investment banks with insurance-focused teams, such as Goldman Sachs,

Deutsche Bank, Credit Suisse and UBS, along with the big three reinsurance brokers...Indeed, the

handful of public transactions announced so far in 2011 are likely to represent only a fraction of the

overall volume of deals getting done.”



Page 6 of 14

BENEFITS OF CONTINGENT CAPITAL

In the banking sector a greater emphasis is placed on liquidity of capital to protect against potential

runs on deposits, which rules out most forms of contingent capital;

For insurers, however, the longer term nature of their liabilities means that contingent capital is a muchmore valuable resource as long as reliance can be placed on the counterparty's willingness and ability

to pay. (Eligible capital for insurance companies By Christophe Ollivier, Financial Institutions Group,

CALYON)

Contingent capital is low-cost off-balance sheet alternative (Culp, 2002a)

Contingent capital structures, however, provide insurers and reinsurers with the right, but not the

obligation, to issue specified security in the future at specified terms regarding price, triggering event

and the time frame... The predetermined price is very important for insurance companies as after the

occurrence of catastrophic event it is usually very hard to obtain financial resources at prices that were

prevailing before the occurrence of the triggering event and in addition, reinsurance and retrocession

markets capacity becomes scarce and expensive. (Vladimir Njegomir and Rado Maksimović - “ Risk

Transfer Solutions For The Insurance Industry” in Economic Annals, Volume LIV, No. 180)

The costs of structuring contingent capital deals are much lower than are for catastrophe bonds as

these deals are made through private placements (Culp, 2006) and usually the main cost is option fee

paid to option writer at agreed intervals.

Additional benefits of contingent capital include balance sheet protection when it is most needed and

access to financing with neither a corresponding increase in leverage nor a dilution of shareholders’

equity (Benfield, 2008).

The economic motivation of the insured corporation is to have access to less expensive capital than it

could obtain through capital markets or bank loans after the occurrence of the trigger event.

The terms and conditions of contingent capital financing can be highly tailored and can thus vary

widely: loans can be fixed or floating rate, securities can be issued as common equity, debt or

preferreds... Contingent capital can be structured in various forms, but generally, two broad classes are

considered: contingent debt and contingent equity ... (Capital Market Instruments for Catastrophe Risk

Financing by Drs. Véronique Bruggeman, LL.M.)

Additionally, contingent capital structures can address risks that are ‘unhedgeable’ or cannot be

adequately mitigated with traditional capital markets tools.

Moreover, potential tax deductibility from ongoing interest payments if debt funding is used can be

seen as another benefit of contingent capital use.

Because the terms of the capital injection are pre-agreed to, the company generally receives more

favourable terms than it would receive if it were to raise capital after a large loss, when it is likely to be

in a weakened financial condition. Under these conditions, contingent capital can provide a cost

efficient solution, aiming at the prevention of insolvency and at the prevention of a threat to planned

investment projects due to a lack of disposable funds. ( SwissRe (1999). Alternative Risk Transfer (ART)

for Corporations: a Passing Fashion or Risk Management for the 21st

Century? Sigma No. 2/1999., 27-

28.)



Page 7 of 14

Paramount Features:

Entry Rules:

1. Only Registered Insurance/ Reinsurance Company qualify.

2. Approval by GAAMCO Management for qualification. (Based on assessment of the following: Audited Accounts for three consecutive years

Proposed Portfolio of Underwriting (EPI + Loss Ratio projections)

KYCC)

3. Contingent Capital Provision Agreement under CARE, entailing the following:

1. GAAMCO will commit to, upon the occurrence of a pre-decided triggering event (T rigger ), purchase

equity ( Asset ) at a pre-set price (Price) for a fixed period of time (Tenure), thus providing the client

with a capital infusion. (As per standard contingent capital contracts)

2. GAAMCO will offer these services against Financial Fees (Commitment Fees)

4. The Re/insurance Company will agree to deposit Premium with the designated bank of GAAMCO, in

trust, for the tenure of engagement. All claims will be forwarded to GAAMCO for imbursements and the

residual income will be shared 50/50 between the Re/insurance Company and GAAMCO.5. Early cancellation of arrangement is subject to a penalty clause – Penalty is pro-rata based on time

before expiry of tenure.

(Terms of Reference are attached for ready reference - Annexure 1)



Page 8 of 14

TERMS OF REFERENCE + TARIFF

With Insurance / Reinsurance (R/I) Customers

1. R/I Company is required to fill in a proposal form with KYC + KYCC particulars and submit it to GAAMCO

with a nominal (non-refundable) processing fee. This fee is usually negotiable. (Proposal Form enclosed -

Annexure 2)

2. CARE – Contingent Capital Agreement will be signed between R/I Company and GAAMCO, defining the

Asset, Tenure, Trigger, Commitment Fee, Price etc.

3. Pre LOC advice and / or a Pre-BG will be provided to the R/I Companies by GAAMCO through their Bankers

via SWIFT MT799

4. R/I Company will deposit “Commitment Deposit” with the designated bank of GAAMCO – This CommitmentFees will in all cases be non refundable. – The Commitment Deposit amounts to 1/12

thof the EPI

Undertaking.

5. R/I Company will provide an EPI Undertaking that the minimum EPI to be generated against the Contingent

Capital Agreement should not be less than the 100% of the value of facility (Draft of EPI Undertaking

enclosed – Annexure 3)

6. GAAMCO will upon receipt of the Commitment Deposit have a Banking Instrument issued to the R/I

Company for confirmation of the CARE – Contingent Capital Agreement.

7.

All Premia generated by the R/I company shall be deposited with the designated Bank of GAAMCO, to beheld in trust for the tenure of the agreement.

8. R/I Company will be at liberty to draw on the premia, being held in trust be designated Bank, to meet the

contingencies of claim up to a maximum of 62% inclusive of Insurer’s and Reinsurer’s retention. (Draft

Letter of Indemnity attached – Annexure 4)

9. The Maximum Limits are as follows:

Insurance Company’s Retention : 15%

Reinsurance Company’s Retention : 17%

Production Cost : 20%Claim Reserves : 62% (Comprising Ins. Retention 15% + Reins. Retention 17%;

Claim Reserves with GAAMCO = 30%)

10. Upon Maturity of tenure GAAMCO will appropriate from the residual amounts after claim withdrawals

made by the R/I Company a sum of 20% of the total deposits for the R/I Companies and or theirs brokers

towards production cost, and 5% for GAAMCO towards management cost.

11. The net savings from the above will be shared between the R/I Company and GAAMCO 50:50.

12. This 50% of the net residual deposit, taken by GAAMCO is the Commitment Fees (Consideration) for the

CARE – Contingent Capital Agreement.

(The financial structure is elaborated in Annexure 5)

Annexure 1



Page 9 of 14

PROPOSAL FORM

CASE NO._____________________

CORPORATE:Full Name of Institution :

Registration Number :

Registration Address :

Physical Address :

(if different from Registration Addr.) :

Business Telephone No. : Fax No.:

E-mail Address :

DETAILS OF SIGNATORY - CORPORATE AND INDIVIDUAL:

Name :

Date and Place of Birth :

Nationality :

Passport Number :

Date of Issue: Date of Expiry:

Title within the Corporation :

Mobile Phone Number :

Do you speak English? :

Email Address :

PORTFOLIO TO BE UNDERWRITTEN

_____________________________________________________________________________________________________

_____________________________________________________________________________________________________

_____________________________________________________________________________________________________

_____________________________________________________________________________________________________

_____________________________________________________________________________________________________

TYPE OF BUSINESSTYPE CAPACITY EPI LOSS RATIO PRODUCTION COST

FireMarine

Motor

Miscellaneous

___________________________Authorized Signature

With Company Seal (Notarized)

Annexure 2



Page 10 of 14

ESTIMATE PREMIUM INCOME (EPI) UNDERTAKING

(INTEGRAL PART OF THE AGREEMENT TO BE)

DATE:

TO: (PROVIDER)

SUBJECT: LETTER OF UNDERTAKING FOR DEPOSIT OF PREMIA WITH THE DESIGNATED BANK OF

GOLDASSURANCE ASSET MANAGEMENT COMPANY LIMITED, TO BE HELD IN TRUST FOR THE TENURE

OF ENGAGEMENT, REFERENCE THIS CARE- CONTINGENT CAPITAL AGREEMENT IN THE AMOUNT OF (

(AMOUNT) )

DEAR SIRS,

REFERENCE IS MADE TO CARE- CONTINGENT CAPITAL AGREEMENT IN THE AMOUNT OF ( (AMOUNT)

) BETWEEN YOUR COMPANY GOLDASSURANCE ASSET MANAGEMENT COMPANY LTD. ANDOURSELVES.

WE HEREBY, CONFIRM AND DECLARE WITH FULL CORPORATE RESPONSIBILITY THAT THE EXPECTED

PREMIUM INCOME FOR THE PORTFOLIO OF BUSINESS DECLARED IN OUR INITIAL REQUEST DATED:, IS USD (USD AMOUNT IS WORDS)

WE FURTHER UNDERTAKE TO DEPOSIT THE PREMIUM GENERATED, NO LESS THAN 100% IN VALUE OF

THE FACE VALUE OF CARE CONTINGENT CAPITAL AGREEMENT WITH THE DESIGNATED ACCOUNT OF

GOLDASSURANCE ASSET MANAGEMENT COMPANY LIMITED DESCRIBED HEREUNDER:

BANK NAME:

BANK ADDRESS:

ACCOUNT HOLDER:

SWIFT CODE:

BANK ACCT NUNMBER:

BANK OFFICER NAME:

BANK TEL:

BANK FAX:

WE FURTHER UNDERSTAND AND AGREE

THAT THE PROCESSING CHARGES PAID FOR THE PROCESSING OF CARE – CONTINGENT CAPITAL AGREEMENT

ALONG WITH ALL DOCUMENTS ARE RETURNED AND/ OR ARE NOT REFUNDABLE,

AND THAT COMMITMENT DEPOSIT, AMOUNTING TO NO LESS THAN 1/12 OF THE EPI OF THE FACE VALUE OF

THIS GUARANTEE IS TO BE DEPOSITED IN THE AFOREMENTIONED DESIGNATED BANK ACCOUNT OF

GOLDASSURANCE ASSET MANAGEMENT COMPANY LIMITED,

AND THAT MONTHLY CESSION OF VALUE NO LESS THAN 1/12TH OF THE TOTAL EPI IS TO BE DEPOSITED IN THEAFOREMENTIONED DESIGNATED BANK ACCOUNT OF GOLDASSURANCE ASSET MANAGEMENT COMPANY

LIMITED, FAILING WHICH THIS CONTINGENT CAPITAL AGREEMENT WILL AUTOMATICALLY BE CANCELLED

THIS UNDERSTANDING IS ALSO BE BINDING ON OUR SUCCESSORS, ASSIGNEES AND TRANSFEREES

INCLUDING BANKERS, RECEIVERS AND ANYBODY ELSE DIRECTLY OR INDIRECTLY INVOLVED ON OUR

SIDE, THE SIDE OF THE BENEFICIARY.

SIGNATURE AND COMPANY STAMP

(NOTARIZED)

Annexure 3



Page 11 of 14

LETTER OF INDEMNITY

This is to indemnify that the agreement between the parties are based on the following terms and conditions;

1) The total losses of the year will not exceed 62% of the premium income earned in any treaty year

(inclusive of Insurer’s and Reinsurer’s retention).

Treaty arrangements being valid and subject to continuity year over year.

2) Total losses in the context of this clause shall mean the losses paid in the current year plus the reserve

for outstanding losses at the end of the current year less the reserve for outstanding losses from the

previous year.

3) The loss ratio shall be calculated by dividing the total losses by the earned premium and expressed at a

percentage.

4) Earned premium shall mean the premium income of the current year, plus the premium reserve from

the preceding year less, the premium reserve for the current year.

5) The loss participation shall be taken into account when calculating the incurred losses for the profit

commission calculation.

6) Both parties reserves the right to insure their exposure for excess of loss at their respective costs

In witness whereof, the undersigned parties have placed their signatures below this date and shall initial each

page of this indemnification agreement.

For and on behalf of R/I Company

Name:

Title:

NIC / Passport No.:

Date:

For and on Behalf of GAAMCO

Name:

Title:

NIC / Passport No.:

Date:

Witnessed By

Name:

NIC / Passport No.:

Address:

Date:

Name:

NIC / Passport No.:

Address:

Date:

Annexure 4



Page 12 of 14

Process Flowchart

Receipt of request for capacity enhancement by aInsurer/Reinsurer(A) to GAMCO

Requisite Documents willinclude:

Duly Signed CARE - Contingent Capital Agreement

Duly filled proposal Form

Three consecutive year Audited Accounts

EPI Undertaking (minimum acceptable 100 % of face value of

Contingent Capital Agreement)

Loss Ratio Indemnification (Max L/R – 60 % of EPI)

Processing Fee, Commitment Deposit, Terms and

any other details are intimated to ‘A’ by GAMCO

Receipt of Processing Fees into the Bank Account of GAMCO

Processing Fees is Non-Refundable and estimated

at ad valorem basis

Pre- LC / BG Advice is issued and Transmitted byGAMCO’s Bank to ‘A’

‘A’ will deposit Commitment Deposit (non-refundabel) in GAMCO’s designated bank account.

Letter of Credit / Bank Guarantee is issued andTransmitted by GAMCO’s Bank to ‘A’

CARE Agreement will beconditional upon:

Monthly premia generated not Less than 1/12 of EPIUndertaking.

The premium to be held in trust by GAMCO, for the tenure of engagement.

‘A’ will forward intimation of claims to GAMCO for

settlement, during the tenure of the banking instrument.

Upon Maturity of tenure, the residual income isshared 50/50 between ‘A’ and GAMCO

Residual income = Deposits – Claims – Prod. Cost (20%) – Management Cost (5%)

20% Production Cost to be paid to ‘A’ by GAMCO for onwardpaymentfrom earned premiums only

5% Management Cost to be paid to GAMCO



Page 13 of 14

Premium Reciept Insurancce Company 100%

Retention(Ins. Co.) 15%

Reinsurance Company 85% - Cession

Retention (Reins.Co.) 17%

GAAMCO 68%

Claims 30% Max.Production Cost

20%Management

Cost 5%Net Profit 13%

Gaamco 6.5%Reinsurance Co

6.5%

Financial Flowchart

Loss Ratios are spread between the

o Insurance Company

o Reinsurance Company

o Claim Reserves with GAMCO

A tripartite agreement can/may be made between the three parties to address claim contingencies in a ratio mutually agreeable between them.

The drawdown value of the Banking instrument will decrease pro-rata with all withdrawals (in lieu of Insurance/ reinsurance retention, Production, Claims etc)



Page 14 of 14

LEGEND

UNIT OF CALCULATION IS 100 Beneficiary of LOC/BG has to be Re-Ins / Insurer (Explaining the terms of Reference)

An Insurance company can approach with a book of business

along with a set of additional documents (i.e. Proposal form,

KYC, KYCC) as per the TOR defined above to GAAMCO.

A Re-insurance company can also directly approach with a book

of business along with a set of additional documents (i.e.

Proposal form, KYC, KYCC) as per the TOR defined above to

GAAMCO.

- GAAMCO will issue a Pre LOC advice / Pre-BG to the Re-

insurer as per the volume of the book of business.

- On receipt of Commitment Deposit GAAMCO will release

the LOC / BG.

- 30% of 100% shall be retained as claim/loss reserves. Total

Claim Ratio amounts to 62% including Insurer’s and Reinsurer’s

retention.

- Marketing cost includes all commissions, fees and expenses

to bring that book of business to GAAMCO.

- Marketing cost will be disbursed on receipt of All Monthly

Deposits.

- This can be shared with the Re-Ins./Insurance company if it

approaches GAAMCO directly.

- GAAMCO will deduct its Management cost on every receipt

of monthly deposit.

- Appropriation of Net Profit will be calculated after all the

deductions from 1 to 7 above at the end of the year.

- If the actual loss stays under the declared ratio the

remaining will be kept aside until the expiry of all policies / LOC.

- Calculated Net Profit will be divided into 2 as one part for

the Investors of Goldassurance.The other part is to share with

the Customer (Insurance / Re insurance Company)

CARE – Contingent Asset Relief Equity (A Proprietary product of Goldassurance Asset Management Co. Ltd.)

Residual Income (Gross)

38

Gold Assurance Investors13 / 2

Basic Mobilization source an

insurance company

15

Re-insurance

Company

17

Gold Assurance

68

Claim Reserves

30

Less Marketing Cost

20

Management Cost

5

Net Profit

13

100-15

= 85

68-30

= 38

5

6

7

8

9

13

85-17

= 68

Bal 68

38

38-20

= 18

18 - 5

= 13

13 - 6.5

= 6.5

1

4

3

2

Annexure 5