July 8, 2010
To:
Board of Directors
From:
John Foehl
Re:
Broker Letter of Record Compensation Disclosure
At the April Board meeting a discussion took place around disclosure requirements for broker
compensation when placing insurance/reinsurance on behalf of clients. Management indicated
that they would produce a suggested disclosure template for internal use and also share the
document with the membership.
Compensation Disclosure
Broker compensation will consist of the following:
A negotiated commission percentage or in lieu of commission a fee for service arrangement.
Whichever option is agreed to by the parties to this Agreement the following disclosures apply:
A.
Compensation from Client
The Client has a negotiated commission (or fee for service compensation arrangement,
in lieu of commissions,) that may normally be paid to Broker by insurance carriers. All
efforts will be made to negotiate placements on a net-of-commission basis; however, in
the event that the Broker is unable to do so, full disclosure of the commissions is
required.
The annual commission or fee set forth herein is in consideration of only those services
specifically listed in this Agreement. Fees for additional services desired by Client shall
be separately negotiated, and not subject to the annual fee of this Agreement.
During the time of this Agreement, Broker will disclose in writing any commissions
received by Broker in connection with any insurance placements on behalf of Client and
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Broker Letter of Record Compensation Disclosure
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will offset such commissions against compensation due Broker by Client hereunder. In
the event such commissions, plus fees pre-paid by Client under this Agreement, exceed
in any Agreement year the annual fee set forth herein, Broker will reimburse Client for
such excess commissions.
Or at the Client’s request, excess commissions can be carried forward and applied
against any compensation due Broker from Client during any subsequent periods that
this Agreement is in effect. As used in this section, the term “commissions” refers to
compensation made to Broker by insurance carriers with respect to a specific placement
of insurance by those carriers, and does not include contingent payment or allowances
(as defined in Section B.3 below) by insurance carriers, markets or companies based on
the overall levels of insurance premiums on policies placed by Broker and/or its
affiliates. Such payments or allowances, if any received, shall be included in the offset of
the annual fee.
In the event of a mid-term termination of this Agreement by either party, all excess
compensation will be paid to Client within sixty (60) days of the date of termination.
B.
Compensation from Others for Placement of Client’s Business
Where Broker or any affiliate of such Broker receives (or is to receive) any compensation
or payment from the Client for the placement of insurance, or represents Client with
respect to that placement, neither Broker nor an affiliate of Broker shall accept nor
receive any compensation or income from an insurer or other third party for that
placement of insurance, unless the Broker has, prior to the Client’s authorization to
purchase of insurance:
1. Obtained the Client’s written acknowledgment that such compensation will be
received; and
2. Disclosed in writing the full amount of compensation received by Broker and its
affiliates from the insurers and other third parties involving the placement. If the
amount of compensation is not known at the time of disclosure, Broker shall disclose
the specific method for calculating such compensation and, if possible, a reasonable
estimate of the amount. Broker shall make such disclosure without being requested
by Client to disclose such information.
3. For purposes of this section, “compensation” shall include, but is not limited to
payments, retail or wholesale commissions, premium finance compensation, fees,
awards, overrides, bonuses, contingent commissions, loans, stock options, gifts,
prizes or any other form of valuable consideration, whether or not payable pursuant
to a written agreement. Broker shall not accept any form of compensation from any
profit-based contingent commission agreements such as, but not limited to, market
service agreements, profit sharing arrangements, placement service agreements,
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tie-ins, retrocession tie-ins, finders’ fees, notional incentives, structuring broker
commissions, strategic partner commissions, volumetric incentives, volumetric
premiums, introducing broker commissions, referring broker commissions,
facultative reinsurance agreements, any “back-end” sources of compensation
and/or revenue, or any additional compensation based on premium volume given to
any particular insurer, by whatever names these contingent commissions are or may
be called.
The Broker and its affiliates will not engage in any so called “bid-rigging,” or any
similar conduct, or accept undisclosed volume based override commissions, “B
quotes,” or any commissions based on volume, renewal rates, or underwriting
profitability, by whatever term such conduct is described. Broker will not accept any
indirect income, including, but not limited to, insurance carrier contingency
arrangements, compensation incentives from insurers, contingent commissions, or
rebates on business placed on behalf of Client.
4. Broker will disclose in writing the markets it intends to approach on Client’s behalf,
and how such markets will be approached, whether to a Broker-owned wholesaler
or an outside wholesaler.
5. Broker agrees to provide an annual written disclosure report of any and all
compensation or income received from any source on placement of insurance
coverage or products placed for Client.
Government Entities Mutual, Inc.
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Appendix A
(Policy on Compensation)
REINSURANCE BUSINESS OF TOWERS PERRIN
COMPENSATION AND DISCLOSURE POLICY
The principal sources of revenue for the Reinsurance Business of Towers Perrin (“Towers
Perrin” ) are derived from:

Reinsurance Brokerage - payment allowed or paid by reinsurers for reinsurance placement
services Towers Perrin provides as a reinsurance intermediary to (re)insurance company
clients (cedents); and
Insurance Brokerage - payment by insurers are specifically negotiated with the insurer or
reinsurer providing the insurance or reinsurance. Occasionally, a fee payable by the insured or
cedent is negotiated and paid. The combination of a fee paid by the insured/cedent and
brokerage (standard or reduced) paid by the insurer/reinsurer is acceptable only if disclosed to
all parties and substantiated by signed documentation between all parties involved in the
specific transaction.
BROKERAGE
Brokerage – Treaty Reinsurance
Towers Perrin’s longstanding practice is to negotiate with reinsurers and accept commission
rates of reinsurance brokerage that are consistent with long-standing industry practice (with
occasional acceptance of other, usually lesser, rates) and generally to support consistency of
those rates within a specific reinsurance placement. Guidelines for rates of reinsurance
brokerage that apply to the majority of business are set forth below.

Brokerage on pro rata reinsurance placements is usually between 1% and 2.5% of gross
ceded premium. Few placements involve brokerage greater than 2.5%.

Brokerage on excess of loss reinsurance placements is usually between 5% and 10% of
ceded premium.

When excess of loss reinsurance placements are made into the London market, an
additional 5% brokerage is often charged and retained by the London correspondent
broker, particularly for catastrophe business. Denis M Clayton, (wholly owned by Towers
Perrin), is often used on these placements.

In some placements (mainly U.S. and Bermuda) when an additional premium applies to
reinstate limits exhausted by paid reinsurance claims, Towers Perrin receives reinsurance
brokerage of up to 5% on those reinstatement premiums.
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Broker Letter of Record Compensation Disclosure
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
On some specific placements, a stated margin is paid to the reinsurer. In those cases,
brokerage is usually in the vicinity of 20% of the reinsurer’s margin.

Should Towers Perrin earn more or less than the above rates on a particular placement, we
will report it to our client.

Should a client request specific information on our compensation on a particular placement,
we will provide it.
Brokerage - Facultative Reinsurance
Unlike treaty reinsurance placements, due to the nature of facultative placements and the
limited lead-time clients typically have to make the purchase decision, brokerage rates for a
given facultative transaction may not be determined until after the placement is complete. The
rates of brokerage that apply for the majority of facultative business are:

In all geographic regions of the world, and for all lines of business except United States
Casualty Facultative business, the standard rate that Towers Perrin will earn is 15% of ceded
reinsurance premium.

For United States Casualty Facultative business, the standard rate Towers Perrin will earn is
10% of ceded reinsurance premium.

Should Towers Perrin earn more or less than the above rates on a particular placement, we
will report it to clients.

On some facultative placements, a local or wholesale broker may be used to access a
particular market. An additional 5% to 10% brokerage rate ordinarily applies and is earned
and paid to the local or wholesale broker on such transactions. A Towers Perrin affiliated
broker may be used on these placements Should a particular placement entitle Towers
Perrin , as a whole, to earn more than 20% in total compensation, Towers Perrin will
disclose this to the client.

In every instance, should a client request specific information on our compensation on a
particular placement, Towers Perrin will provide it.
Brokerage – Insurance

Brokerage rates for insurance generally are established by the insurer and run between 5%
and 20% of premium depending on line of business and size of account.

Should Towers Perrin earn more or less than the above rates on a particular placement, we
will report it to clients.
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Broker Letter of Record Compensation Disclosure
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
Should a particular placement entitle Towers Perrin, as a whole, to earn more than 20%
percent of premium in total compensation, Towers Perrin will disclose this to the client.

In every instance, should a client request specific information on our compensation on a
particular placement, Towers Perrin will provide it.
SERVICE FEES
Towers Perrin also provides other insurance and reinsurance related services for which it
receives fee income. Instances where these service fees are charged are relatively small in
number and any fees paid may be in addition to the brokerage earned for traditional
reinsurance intermediary services. Revenue from these activities represents a small portion of
Towers Perrin’s (re)insurance total income and Towers Perrin provides details of the fees and
related services to clients.
CONTINGENT COMMISSIONS
Towers Perrin does not accept or enter into contingent commission agreements based on the
volume of business placed, profitablilty of business placed or for any other reason.
REGULATORY REQUIRED ACTIONS
In certain jurisdictions and countries, legal and/or regulatory requirements may stipulate
additional documentation or disclosure, such as:

A client's written acceptance of brokerage rates,

A client’s agreement to the use of a wholesale broker,

Disclosure of all quotes,

An annual broker compensation report,

Disclosure of reinsurance markets with which we have contractual arrangements, and

Disclosure of the ownership position of Towers Perrin in any insurer or reinsurer.
Towers Perrin will provide this additional information as required, or as requested by our client.
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CLIENT DISCLOSURE

When a client appoints Towers Perrin as broker of record, we will disclose to our client the
estimated brokerage percentage rate or service fee we anticipate receiving for all services
to be provided on the client's behalf on that program.

Prior to subsequent renewals of reinsurance or insurance contracts, we will review with our
client our estimated compensation from all sources.

Towers Perrin strives for and generally achieves consistency in rates of brokerage to be
earned by Towers Perrin within a layer of reinsurance and will disclose any variation in
reinsurance commission rates to all parties participating within that layer.
INTEREST INCOME
In accordance with common practice and general custom and usage within the reinsurance
business, Towers Perrin’s Broker Services Agreements usually authorize Towers Perrin to retain
income earned on fiduciary funds passing through our systems.
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