© 3M 2007. All Rights Reserved.

3M Human Resources Benefits

Using an Alternative Risk Solution for International Employee BenefitsModerator: Clayton Price

Panelists: Karen Markowski Gary PitmanBrad Viessman

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Sampling of Captives that are Public about their approval to write US Benefit Plans since Columbia Energy’s in 2000

• ADM

• AGL

• Alcoa

• Alcon Labs

• Astra Zeneca

• Columbia Energy

• Heinz

• International Services

• International Paper

• SCA

• Sun Microsystems

• Wells Fargo

Life, Pooling

Life

Life Pooling

Life, LTD

Multinational Pooling, Life, LTD

LTD

Life

Multinational Pooling

Life, LTD

Life, LTD, Pooling

Life

Life, LTD

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3M Global Employee benefits – Case StudyHuman Resources/ Finance – Pooling and

Reinsurance to a Captive

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3M’s Brands

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3M Company

• Established in 1902

• 2006 Annual Revenue of $22.9 Billion

• More than 60% of sales outside of US

• Over 73,000 employees, more than 40,000 are international employees

• Companies in more than 60 countries, sell in more than 200 countries

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3M Insurance Department

• Global responsibility for property and casualty programs

• Report into Treasury/Finance

• Partner with three global brokers

• Captive Insurance Companies:

Seaside: Bermuda captive – incorporated in 1972 International Casualty US Workers CompensationTwo Harbors: S. Carolina captive – incorporated

in 2007 Global Property

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Global Benefits Department

• Coordinating the global employee benefit needs for 3M

• Responsible for the design, review and approval of employee benefit plans– North America

• 2 countries, 36,200 employees– Europe/Middle East/Africa

• 35 countries, 17,200 employees– Asia Pacific

• 15 countries, 12,500 employees– Latin America

• 18 countries, 6,500 employees

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Benefit insurances covered under the global program

• Group Life Insurance– Employer Funded - Basic– Employee Funded – Supplemental

• Disability– Short-term– Long-term– Permanent & Total (PTD)

• Medical– Managed Care– Major Medical/Hospitalization– Dental/Vision

• Accidental Death & Dismemberment (AD&D)

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Overview of Historic Arrangements

• Multinational Pooling History– Three pooling providers – covering 40 countries and

$21 million in premiums• John Hancock (IGP) – started 1974• AIG – started 1974• Swiss Life – started 1977

• Issues/concerns– No central knowledge base– Lack of control– Opportunity for cost savings

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Employee Benefits Project Progression

No Standard Process

Phase I - BB ProjectDefine Active Pool Process, Optimize Contract Renewal,

and Pooled Arrangements

Captive Ins. – BB ProjectReduce insurance expenses

US Benefit Inclusion

Time-Line

Pro

cess

Im

pro

vem

ent

Entitlement Process

Phase II - GB ProjectDefine RFP and Reduce Number

of Global Providers (2)

2004 2005 2006 2007

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• Cost savings to 3M due to reduced reliance on insurance companies to insure employee benefits risk– Projected range of 5-15% (validated by peer companies)*

• 3M retains cash and generates investment returns (versus insurance company using money during the year)

• Improved timeliness of claims data to better manage benefit programs

• Centralized expertise for managing employee benefit insurance– Reduced subsidiary administration time for annual

bidding/analysis/contract renewal process

*Notes:1. Savings may vary by policy type, local insurance market conditions, broker usage, and claims

experience. 2. Expenses and Risk charges will be reduced but not eliminated as AIG/Generali will be administering

policies and claims activities on a local level.

Why Change?Advantages of New Approach

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Project MapProcess Map 1/19/2006

113024 Captive Insurance Inputs Process Steps Outputs

HIGH LEVEL

Stakeholders Plan: New Structure, Contracts, and ProcessCurrent State Commitment to ImplementGoals & Objectives

LOW LEVELPlanned

DateActual Date Resource Notes

Stakeholders Defined End State 12/9 12/9 in the teamroomCurrent State - Init. Cap. Agreement on End State 12/9 12/9

Goals/ObjectivesList of Benefits/ Policies/ Countries in Scope 12/22 1/3 Brad, Leo Leo to provide country and premium data for P&C; Brad will provide similar for EB

Countries In-scope

3M Management of Captive:Data management; accounting, governance (RACI) 12/22 12/22

Benefits

Statutory Requirements (DOL/IRS/Local)

List of Feasible Domocile Options 1/3 1/5 Karen to work with Marsh to provide list of possibilities

Defined End StateDomicile RegulationsFronting Carrier Capabilities

List of Feasible OptionsFinancial/Qualitative Model for Each Option

Financial Data3M Subject Matter ExpertsExternal Information Resources

Statutory Requirements Selected Optimal Structure 4/3Financial Model New OUS EB process

Stakeholder AcceptanceNew P&C Process (if required)

Implementation Capabilities

Statutory Requirements

Defined acctg. transactions (tax, cash, internal control, etc.)

Subsidiary SupportImplementation Plan - 3M data management (step 1)

Selected Optimal Structure Plan to Cancel contractsContract Data Plan for New ContractsExternal Information Resources and Business Processes

Plan to create new captive entity (if necessary)

Implementation PlanSubsidiary Commitment to Implement

"What's in it for them"List of changesFAQs

Attain Subsidiary Buy-In (If

necessary)

Create Implementation

Plan

Determine Optimal Structure

Optimize P&C and OUS EB Captive

Structure

Document End-State Vision

Determine All Feasible Domicile

Options

Perform Cost/Benefit

Analysis

Six Sigma Elements:• One time event• Lean• Re-design• Design

Perform Financial Analysis

Select Captive Domicile

Create Implementation Plan

Conduct Pilot

Gain BMA Approval

Control the Process

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Domicile Selection

• Evaluated based on Taxes, Regulations, Infrastructure, Perception

• Created detailed descriptions of criteria

• Sent to 3 External Subject Matter Experts (SMEs)

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Benchmark Savings - Prem. Discount

Financial Analysis

• Professional Trade Journals– Multinational company saved 15%

• 3rd Party Consultants– Watson Wyatt estimated 10-20%

• Industry Contacts– 3 peer multinational companies experienced savings of

20% - 25%

Takeaway: 3M’s savings estimates are reasonable

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Design & Implementation

Implementation Plan

Project Management Documents1. Implementation Plan & Open Items2. Timelines

Design Process1. Identify major responsibilities2. Process Maps3. Examine potential failures4. Pilot – Execute mock process

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Cross Functional Map

Implementation Plan

• Documented process steps performed by various groups

• Helped define language for discussion purposes

• Part of control plan

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RACI Organization / Individual

Process Step

Incrementa

l?

Estimated Incremental Increase in

Hours per UnitHours/Year Insurance (Org.) Employee Benefits (Org.)

Captive Management

setting P&C premium rates N 170 Annual 0 A/R I Isetting EB premium rates Y 100 Annual 100 I A IP&C strategy N 20 Annual 0 A/R C CEB strategy Y 20 Annual 20 C A/R Cpolicy issuance / management of policy exceptions Y 100 Annual 100 A Aasset investment strategy 0 0 A/C I Itax strategy N A/C I Icaptive budgeting/forecasting \ \ 0 A/R C Cdetermine receivables and reserves Y 10 Annual 10 A/R C Imonthly accounting entries to 3M Parent (P&C) N 2 Month 0 A/R I Rmonthly accounting entries to 3M Parent (EB) Y 2 Month 24 I I Rreconciliation of payments (EB) Y 12 Month 144 I A/R Creconciliation of payments (P&C) N 8 Month 0 A/R Ccash account reconciliations Y 2 Month 24 A Rdeclare dividend N 2 Annual 0 A/R C Creview of claims activity (P&C) N 16 Month 0 A/R Ireview of claims activity (EB) Y 16 Month 192 I A/R Ireview of monthly financial statements (requires knowledge of appropriate activity) Y 4 Month 48 A/R I RSub Oper. Plan \ 0 I IRegulatory compliance (local policies) \ 0 A A

R = Responsible (performs the step)A = Accountable (makes sure the step is done)C = Consulted (asked for input)I = Informed (made aware of decisions or status)

RACI – Design the Process

Implementation Plan

• P&C process owner defined major process steps

• Documented which steps would be added with EB program

• Updated RACI at end of project

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Pilot – Process Validation

3M provides narrative and data to Fronting Carriers

Fronting Carrier delivers reports

Captive mgmt. creates financials

3M reviews for compliance

• Mock data: 12 countries, 3 plans

• 5 quarters (one annual cycle)

• Common failure modes – Currency fluctuations– Delayed premium payments– Taxes, Reserves, Fees

Conduct Pilot

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Bermuda Regulatory Approval

Application included: – Business narrative describing case for creating captive– Scope of new business; types of risk, countries– 5 year pro-forma financials based on historical experience– Reserve and reinsurance information– Appointment of an accredited Loss Reserve Specialist

(LRS) – Authorization from Seaside Board of Directors

Approval granted November 24th, 2006

Gain BMA Approval

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Control Plan

• 12 control steps• links to sample reports

Control the Process

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Project Benefits

• Process established to add more countries

• Improved timeliness of claims data to better manage benefit programs

• Centralized expertise and purchasing of employee benefit insurance– Reduced subsidiary administration time for annual

bidding/analysis/contract renewal process– Sourcing leverage

• Electronic mapping of financial data

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Bridge to Entitlement

• Expansion of process to include more countries (expected in 2008)

• Possible addition of US Benefits– Requires Dept. of Labor approval– Potential for preferential tax treatment– Few companies have implemented

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Chevron’s Brands

Our Family of Brands

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Chevron Company Information

• Established 1879

Pacific Coast Oil Co.

• 2006 Annual Revenue $205 Billion

• Employees 26,488 (US) 29,394 (ROW)

• Countries 180

• Recent Acquisitions Unocal Texaco (includes Getty) Gulf

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Chevron’s Captives• Ironhorse incorporated in 2005

• Heddington incorporated in 1970

• Puritan incorporated in 1986

• Traders incorporated in 1977

• Insco incorporated in 1971

• Global Property

• Global Casualty

• Operators Extra Expense

• Global Aviation

• TRIA & Workers Compensation

• Run-off Liability

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Advantages:

• The Bermuda Trust managed by a Trustee Companyhas enabled Chevron to combine various different International Benefit Plans under an umbrella trust and it has worked well.

• International employees having no suitable home or host country benefit packages can be enrolled in our Global Benefit Plans. This enables them to move from job to job without having to change plans.

Chevron’s Alternative Solution for their Employee Benefits program

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Chevron’s Alternative Solution for their Employee Benefits program

Bermuda was chosen because:

• Bermuda is a key International Financial Centre

• Bermuda has a strong reputation in plan management and administration.

• Bermuda is an ideal location for pensions of globally mobile employees

• Bermuda’s regulation is comparatively favorable

• Confidentiality in Bermuda is assured: There is no compulsory registration or any filings for international plans including Statement of Accounts, Balance Sheet, Actuarial Report

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Chevron’s Alternative Solution for their International Employee Benefits program

Concerns

• Following Chevron’s merger activity the Company has 7 captives and the priority was to rationalize these captives before considering utilizing them for HR Benefit Plans

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Overview of the Trust

• Types of cover Pension Retirement Assistance, Savings & Health

• # of employees covered 4000

• # of countries 25

• # of assets in Trust: $90 million

• Future Plans? Continue to utilize the Bermuda Umbrella Trust approach for amalgamating all Global Benefit Plans

Review utilizing captives to incorporate International Employee Benefit Plans once the Captives are rationalized