Value · The AEGIS mutual model delivered on its promise in 2018 to provide members with the best...

Value

AEGIS 2018

Annual Review

35510 AIS_18_value_3_28_8saddle.qxp_Layout 1 4/9/19 3:16 PM

The AEGIS mutual model delivered on its promise in 2018 to providemembers with the best long-termvalue for insuring their assets and operations.


1

Letter to our Membership

We are pleased to report another very good year for your mutual. The AEGIS mutual model delivered on its promise in 2018 to providemembers with the best long-term value for insuring their assets and operations. The AEGIS model is a unique alternative to the commercial insurance market because it’s structured with the sole objective of managing your premium and losses to deliver the lowest long-term cost of risk.

Despite several significant member losses and lower investment returns,our financial strength reached record levels, claims were paid quickly andefficiently, and we expanded our underwriting product offerings, policylimits and member credit programs.

Our gross premiums written were $1.57 billion – up 17% from the previous year. Member support of new and existing coverages and growthin several diverse classes of business in London contributed to this stronggrowth. We were pleased to pay more than $723 million in claims to policyholders in 2018, which brought the total amount of claims paidsince AEGIS was founded in 1975 to more than $17.1 billion.

At the same time, we increased our policy limits for Excess Liability,D&O, Property and Cyber; formed an alliance with a leading renewableenergy partner providing up to $400 million in wind and solar energyproperty limits; launched a new Generation Outage product; and enhanced virtually every component of our premium credit program –including a new member loyalty credit – which increased the pool ofmember credits by 34% for the 2018-2019 credit year.

Also in 2018, the AEGIS Loss Control team completed 192 memberservice visits, conducted more than 1,000 risk assessments, hosted 11energy industry-specific webinars, and trained more than 1,700 utilityemployees at member companies. These efforts underscore ourcommitment to safety and training, and they support the day-to-dayoperations at member companies. The aggregation and sharingof loss control information provides important data and operationaldetail that is used by the membership to help operate safe andreliable systems.

The industry knowledge and expertise of our members, brokers, Board of Directors, Risk Management Advisory Committee (RMAC) and AEGISemployees in North America and London drive the AEGIS model, and for that we are most grateful. Together, we created tremendous value in2018, and we look forward to building on this success in the year ahead.

Wesley W. von Schack

Chairman of the BoardWilliam P. Cullen

President & CEO


2

The value produced by the AEGIS model reached new levels in 2018.

Gross Premiums WrittenMutual and Syndicate ($ millions)

Policyholder Surplus($ millions)

Member Credits Declared($ millions)

0

200

400

600

800

1000

1200

1400

1600

09 10 11 12 13 14 15 16 17 18

1,567

ExcessLiability

Workers’Comp

CyberD&O

Gen Outage

Property

Alliance

Mutual Syndicate

LondonProperty

LondonCasualty

Specialty

Marine& Energy

0

10

20

30

40

50

60

6270

14 15 16 17 18

Gross Premium by Line of BusinessMutual and Syndicate (Nominal)

2018 Results

0

200

400

600

800

1000

1200

1400

16001,6361800

09 10 11 12 13 14 15 16 17 18


33

Results

Gross premiums written: $1.57 billion

Policyholder surplus reached record: $1.64 billion

Combined ratio: 88%

Claims paid to policyholders: $723 million

Member credits declared: increased 34%

Gross investment return: $53 million

Member retention ratio: 99%

A.M. Best rating: “A” Stable


4

Transitions

With more than 60 member company representatives serving on

our Board of Directors, RMAC and Task Forces, it’s inevitable that

some will move on to begin new chapters in their professional and

personal lives. Fortunately for AEGIS, there are always plenty of

members willing to step in and support their mutual.

Three members of the AEGIS Board of Directors chose not to stand forre-election in 2018. Christopher Johns, President and Vice Chairman (retired) – Pacific Gas & Electric, Ronald Litzinger, President (retired) –Edison Energy Group, and William Timmerman, Chairman & CEO (retired) – SCANA Corporation, resigned from the Board and wereelected to the position of Director Emeritus. We thank them for theirmany valuable contributions to AEGIS and wish them all the best in the future.

On the AEGIS London Board of Directors, W.R.P. Dalton stepped down as Chairman upon his retirement. Prior to serving as Chairman,Bill was a member of the AEGIS and AEGIS London Boards for manyyears, beginning in 2004, and he held senior leadership positions atHSBC. We thank Bill for his guidance during a period characterized bysignificant challenges and tremendous growth, and wish him all the best in the future. Thomas G.S. Busher, previously head of the LondonBoard’s Risk Committee and a member of the AEGIS Board since 2016,has succeeded Bill. Tom is the former Chief Operating Officer, Directorand Deputy Chairman at Montpelier Re. We welcome Tom to his newrole, and we are grateful for his ongoing contributions to AEGIS.

The AEGIS Risk Management Advisory Committee (RMAC) welcomedfour new members: Tim Bucci, Director, Risk Management & Insurance – The Williams Companies; Gregg Crenshaw, Director, Corporate Risk Management – Dominion Energy; Lisa Groff, Vice President and Chief Risk Officer – American Electric Power; and Julie Yount, Insurance Program Manager – Puget Sound Energy. We are grateful to these AEGIS members for their willingness to contribute their time and expertise to the RMAC, and we look forward to their contributions.

On the RMAC’s Enterprise Risk Management (ERM) Task Force, Steve Haynes stepped down when he accepted a new role at American Electric Power (AEP) as Senior Vice President – Strategy & Innovation. Keith Bone stepped down from the Claims Task Force upon his retirement from Duke Power, where he was the Director of Insurance & Claims. We thank them both for their many valuable contributions to the Task Forces and wish them all the best in the future.

Two members joined the Loss Control Task Force in 2018: Randy

Murdaugh, Senior Risk Manager at Associated Electric Cooperative, and David Heller, Vice President of Risk Management and Chief Audit Executive at Edison International. We look forward to their contributions.


5

Five-Year Financial HighlightsAssociated Electric & Gas Insurance Services Limited

For the years ended December 31 (Expressed in thousands of U.S. dollars)

2014 2015 2016 2017 2018

Revenue:

Gross premiums written $1,348,493 $1,250,510 $1,236,475 $1,344,705 $1,567,145

Net premiums written 943,102 860,121 821,955 880,647 1,028,021

Net premiums earned 897,966 892,685 838,455 852,131 961,028

Net investment income (loss) 83,037 (16,791) 117,725 147,935 58,073

Change in fair value of insurance and reinsurance contracts (42,587) 28,642 (22,333) (31,284) (1,630)

Total revenue 938,416 904,536 933,847 968,782 1,017,471

Expenses:

Losses and loss expenses incurred 566,668 518,745 556,630 567,905 594,727

Commission expenses 110,272 97,077 82,589 98,172 122,340

Other underwriting expenses 131,231 111,434 99,771 105,091 129,389

Total expenses 808,171 727,256 738,990 771,168 846,456

Income before continuity and other premium credits and income taxes 130,245 177,280 194,857 197,614 171,015

Continuity and other premium credits 20,796 19,964 29,275 37,837 44,709

Income before income taxes 109,449 157,316 165,582 159,777 126,306

Income tax provision 42,581 70,162 53,467 27,050 26,199

Net income $ 66,868 $ 87,154 $ 112,115 $ 132,727 $ 100,107

Other comprehensive (loss) income, net of income tax (benefit) expense (1,504) (18,596) 26,478 (4,160) (21,244)

Total surplus, beginning of year 1,156,183 1,221,547 1,290,105 1,428,698 1,557,265

Total surplus, end of year $1,221,547 $1,290,105 $1,428,698 $1,557,265 $1,636,128

Total assets $6,037,151 $5,718,282 $6,087,210 $6,512,136 $7,073,674

Reserve for losses and loss expenses $3,165,788 $2,879,855 $3,068,261 $3,306,617 $3,659,832

The Company has reclassified certain prior year amounts to conform to the current year’s presentation.

For details on our 2018 financial results, please visit aegislink.com.


6

Leadership

Our mutual efforts are guided bythese experienced executives and professionals drawn primarily fromthe member companies we serve.They generously contribute their time and expertise, and they are essential to our success.

Board of Directors

Gregory E. Abel

Vice Chairman – Non-Insurance Business OperationsBerkshire Hathaway Inc.ChairmanBerkshire Hathaway Energy Company

Robert W. Best

Director & Former ChairmanAtmos Energy Corporation

Thomas G.S. Busher

ChairmanAEGIS LondonFormer Chief Operating Officer andDeputy ChairmanMontpelier Re

Christopher M. Crane

President & CEOExelon Corporation

William P. Cullen

President & CEOAEGIS Insurance Services, Inc.

Thomas F. Farrell, II

Chairman, President & CEODominion Energy, Inc.

Walter M. Higgins

ChairmanSouth Jersey Industries

James J. Jura

CEO & General Manager, RetiredAssociated Electric Cooperative, Inc.

Constance H. Lau

President & CEOHawaiian Electric Industries, Inc.

Charles A. Schrock

Chairman & CEO, RetiredIntegrys Energy Group, Inc.


ChairmanAssociated Electric & Gas Insurance Services Limited

Officers


Chairman of the Board

Gregory E. Abel

Vice Chairman

William P. Cullen

President & CEO

William L. Hillman

Assistant Vice President & Chief Underwriting Officer

Michael S. Johnson

Controller

Simon J. Day

Actuary

Rip Reeves

Treasurer

Patricia L. McKenna

Assistant Treasurer

Mark A. Walsh

Secretary

Elda B. Feldman

Assistant Secretary

AEGIS London Board

of Directors

Thomas G.S. Busher

Chairman

David Croom-Johnson

Managing Director

Gregory E. Abel

John Chambers

Christopher M. Crane

Thomas F. Farrell, II

Christopher Forbes

Jonathan Gray

Michael Onslow

Alex Powell

Hermien Smeets-Flier

Graeme Tennyson


Matthew C. Yeldham


7

Risk Management Advisory

Committee (RMAC)


Associated Electric & Gas InsuranceServices Limited

Johan G. Bramer

TransCanada Corporation

Timothy R. Bucci

The Williams Companies, Inc.

Denise M. Cosentino

Eversource Energy

Gregg Crenshaw

Dominion Energy, Inc.

John Frank

Basin Electric Power Cooperative

Deborah S. Gaffney

Southern Company

Lisa R. Groff

American Electric Power Company, Inc.

David A. Layne

Algonquin Power & Utilities Corp.

Janaize Markland

Pacific Gas & Electric Company

Joseph T. Meaney, Jr.

The AES Corporation

Michael A. Mee

Exelon Corporation

Robert L. Miller

Xcel Energy Inc.

Peter M. Nadel

FirstEnergy Corp.

H. Wayne Soza

El Paso Electric Company

James M. Vacek

CenterPoint Energy, Inc.

Julie A. Yount

Puget Sound Energy, Inc.

Enterprise Risk Management

(ERM) Task Force

Denise M. Cosentino

Eversource Energy

Christopher Eaton

Enbridge Inc.

Janaize Markland


H. Wayne Soza

El Paso Electric Company

Evolving Utility Industry Risk

Task Force

J.P. Agnesse

Portland General Electric Company

Lisa R. Groff

American Electric Power Company, Inc.

Kirk A. Kelley

Tennessee Valley Authority

George W. Marget III, Esq.


Ronald D. Rispoli

Entergy Services, Inc.

Richard Sayette

Exelon Corporation

Frank Stanbrough

Southwest Gas Corporation


8

Claims Task Force

David P. Abernathy, Esq.

Spire Inc.

Derek W. Boyd

Atmos Energy Corporation

Kirk A. Cresto

NiSource Corporate Services

C. Larry Davis, Esq.

San Diego Gas & Electric Company

Bryony Hodges, Esq.


Judy Y. Liu, Esq.

CenterPoint Energy Service Company, LLC



Douglas J. McKay, Esq.

Consolidated Edison Company of New York

Timothy J. Saviano, Esq.

WEC Energy Group

Mark J. Sweeney, Esq.


Loss Control Task Force

Mark Boone


Robert Brandkamp

Avista Corporation

Mariya Coleman

Berkshire Hathaway Energy Company

Robert A. Green

PSEG Services Corporation

David Heller

Edison International

Lisa Hough

Omaha Public Power District

John Mellette


Sandy Meyers

City Utilities of Springfield

Randy W. Murdaugh

Associated Electric Cooperative, Inc.

John C. Norman

AVANGRID

Ronald D. Rispoli


Scott Wibbenmeyer

Ameren Services Company


Claims Task Force

David P. Abernathy, Esq.

Spire, Inc.

Derek Boyd

Atmos Energy Corporation

Kirk A. Cresto

NiSource Corporate Services

C. Larry Davis, Esq.

San Diego Gas & Electric Company

Bryony Hodges, Esq.


Judy Y. Liu, Esq.

CenterPoint Energy Service Company, LLC



Doug McKay

Consolidated Edison Company of New York

Timothy J. Saviano, Esq.

WEC Energy Group

Mark J. Sweeney, Esq.


Loss Control Task Force

Mark Boone


Robert Brandkamp

Avista Corporation

Mariya Coleman

Berkshire Hathaway Energy Company

Robert A. Green

PSEG Services Corporation

David Heller

Edison International

Lisa Hough

Omaha Public Power District

John Mellette


Sandy Meyers

City Utilities of Springfield

Randy W. Murdaugh

Associated Electric Cooperative, Inc.

John C. Norman

AVANGRID

Ronald D. Rispoli


Scott Wibbenmeyer

Ameren Services Company

Offices

AEGIS

Associated Electric & Gas

Insurance Services Limited

The Maxwell Roberts Building

Fourth Floor

One Church Street

Hamilton, Bermuda HM11

Telephone: 441.296.2131

AEGIS Insurance Services, Inc.

1 Meadowlands Plaza

East Rutherford, NJ 07073

Telephone: 201.508.2600

Fax: 201.896.6638

Claims fax: 201.508.1451

Website: aegislink.com

E-mail: [email protected]

AEGIS London

AEGIS Managing Agency

Limited

33 Gracechurch Street

London EC3V 0BT England

Telephone: 44.207.265.2100

Fax: 44.207.265.2101

Website: aegislondon.co.uk

E-mail: [email protected]

2019 AEGIS Meetings

Annual Meeting

The Annual General Meeting of

Members of the Company will be

held on October 24, 2019. Notice

of the Meeting and the form of

proxy will be issued to each

voting Member not less than

ten days before the meeting

convenes, stating the date, place,

time and nature of the business

to be considered.

Policyholders’ Conference

The annual AEGIS Policyholders’

Conference will be held July 15

to 18, 2019, in Boston, MA.

Registration information will be

e-mailed and posted on our website.

Other Meetings and Seminars

AEGIS will also host a series of

regional member meetings, Claims

Roundtable seminars, and a

number of underwriting, claims

and loss control seminars and

webinars throughout 2019. Please

visit aegislink.com for details.

Associated Electric & Gas Insurance Services Limited (“AEGIS”) was incorporated in Bermudain 1971 and commenced underwriting activities in 1975. AEGIS is a Class 3 Insurer inBermuda.

AEGIS is an eligible surplus lines insurer in all jurisdictions of the United States. It is subject toUnited States federal income taxes, files the required tax returns, and maintains a United Statestrust fund in excess of $250,000,000. AEGIS is also a licensed foreign insurance company in all provinces and territories of Canada and is listed on the general register of foreign reinsurers in Mexico.

AEGIS’ operations are conducted through a wholly-owned subsidiary, AEGIS Insurance Services,Inc. (“AEGIS Services”), which provides AEGIS and its affiliates with professional staff andservices.

AEGIS London (the AEGIS Syndicate at Lloyd’s of London, number 1225) commenced operations in 1999. AEGIS London’s operations are supported by AEGIS Managing AgencyLimited (“AMAL”), which provides professional staff and services for AEGIS London. AEGIS Electric & Gas International Services Limited (“AEGIS International”) is a corporatemember of Lloyd’s and the principal capital provider of AEGIS London. Both AMAL andAEGIS International are indirect subsidiaries of AEGIS.

In the U.S., AEGIS; AEGIS & Design; the AEGIS Logo (any reference to “Logo” or “Design”are references to the AEGIS Diamonds Design); AEGISLINK; HOW SAFE; PEOPLE DON’TKNOW WHAT THEY DON’T KNOW; LESSONS LEARNED; AEGIS LONDON; and AEGIS LONDON & Design are registered trademarks of AEGIS.

In the U.K., AEGIS; AEGIS LONDON; and AEGIS LONDON & Design are registeredtrademarks of AEGIS.

In the E.U., AEGIS; AEGIS & Design; the AEGIS Logo; AEGISLINK; AEGIS LONDON;and AEGIS LONDON & Design are registered Community trademarks of AEGIS.

In Bermuda, AEGIS; and the AEGIS Logo are registered trademarks of AEGIS.

In New Zealand, AEGIS is a registered trademark of AEGIS.

In Canada, AEGIS; AEGIS & Design; AEGIS CANADA; the AEGIS Logo; AEGIS LONDON; and AEGIS LONDON & Design are registered trademarks of AEGIS.

©2019 Associated Electric & Gas Insurance Services Limited and AEGIS Insurance Services, Inc.

All rights reserved.


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