FINITE RISK INSURANCE PROGRAMS
Outline
Conceptual model, and analysis of so-called “finite risk” or
“finite premium” environmental insurance programs
 What is finite risk insurance?
 Structuring transactions using finite risk insurance
 Current state of the finite risk market
 Comparison of environmental risk transfer programs using
finite risk versus other insurance structures
 Benefits/disadvantages of finite risk insurance
 Case studies
2
What is Finite Risk Insurance?
 Single, comprehensive definition does not capture all
economic concepts and benefits of finite risk.
 Generally, a risk financing or insurance contract between
insured and insurer where future losses are funded up to a
finite limit, over a specific time period.
 Under a finite risk insurance contract, the insurer assumes
timing risk, investment income risk, and underwriting risk.
 Insured funds expected losses, but insurer assumes timing
and investment risk within the funded loss amount by having
the insured pay net present value of expected cash flows.
 Key assumptions impacting finite risk pricing:
 Discount rate
 Inflation rate
3
Structuring a Finite Risk Transaction
 Estimation and modeling of remediation/long-term care costs
 Estimation of key economic inputs, project duration
 Selection of risks to be underwritten
 Drafting of insurance contract manuscript
 Analysis of premium
 Comparative analysis of finite risk with other insurance
options (cost cap, captive)

Unique to finite risk – Commutation account provisions
 Program management
4
Current State of the Finite Risk Market
 Capacity
 Participating markets
 Existing finite risk programs
 Key market drivers
 Profile of good and poor project candidates for finite risk
programs
5
Comparative Analysis – Finite Risk versus
Other Environmental Insurance Programs
 Cost
 Duration
 Deal complexity
 Effectiveness
 GAAP accounting impacts
 Value analysis
6
Benefits of Finite Risk Insurance
 Complexity
 Duration
 Economic incentives to insured
 Credit risks
 Market/investment risks
7
Case Studies
 Oil refinery – high cost exposure (>$70MM), long duration
 Multi-site portfolio – medium cost exposure (<$20MM), long
duration, unique client objectives, high deal complexity
8
How EMSOURCE Risk Transfer Works
 Project Risk Analysis – environmental, regulatory and economic
reviews, modeling, scenario analysis
 Environmental Risk Underwriting – insurance analysis, carriers
review risks
 Transaction Structuring – manuscripting insurance, financial
elements, regulatory oversight, transaction document
 Transaction Closing – risk transfer contract, regulatory
agreements, real estate transfers, insurance program
 Compliance Program – transition into ongoing tasks
9
EMSOURCE Risk Transfer Model
Indemnification
Liabilities
Funds
CLIENT
Premium
EMSOURCE, LLC
Coverage
Insurer
10
Typical Risk Transfer Structure
Cleanup Costs
Worst Case
Insurance
Limits
Cost Cap Insurance
Buffer
Expected Case
Best Case
11
Expected
Cost –
Remediation
and O&M
SIR
Risk Transfer Transaction Elements
 Insurance-backed indemnification – Competitive underwriting
for remediation and long-term care risks, future unknowns, legal
defense, 3rd party tort liability
 Environmental liability and management transfer agreement
– Contractual transfer of liabilities (and real estate, if desired)
 Project finance structure – Simple trust fund, QSF trust, finite,
or captive risk structures to meet the needs of client
 Regulatory agreements – Transfer of regulatory responsibility
to EMSOURCE (consent orders, VRA, other)
12
Why Risk Transfer ?
 Cap total financial exposure and mitigate risks
 Liberate and focus resources for high-visibility projects and new
sites
 Reduce internal management costs, obligations, and
responsibilities
 Improve balance sheet and shareholder value (unwind reserves,
tax savings)
 Facilitate real estate transfer and reuse
13
EMSOURCE Capabilities
 Environmental risk transfer and liability acquisition
 Portfolio structuring
 Risk and decision analysis
 Captive feasibility analysis & management
 Trust fund and investment management
 Environmental insurance advisory
 Technical, financial, legal, regulatory and administrative
coordination and oversight
 Management and maintenance of institutional and engineering
controls