Willis Towers Watson Merger Willis Towers Watson Public Limited Company (NASDAQ: WLTW) began operating on January 5, 2016 following the completion of the merger of Willis Group Holdings Public Limited Company and Towers Watson & Co. Doing business under the brand Willis Towers Watson, this new combination creates a leading global advisory, broking and solutions company serving 80% of the world’s 1,000 largest companies. 1

A truly compelling combination with a stong client focus and an emphasis on teamwork:�� 39,000 colleagues in 120+ countries

�� Scale, diversity and financial strength — $8.2 billion revenue

�� A deep history dating back to 1828

“Willis Towers Watson is uniquely positioned to see the connections between talent, assets and ideas and how they can lead to strong performance and growth for our clients. We intend to help our clients manage risk and engage their people in a whole new way,” said John Haley, CEO of Willis Towers Watson. “We believe we can change our industry by delivering solutions that are driven by data and analytics, and are integrated, innovative and tailored to meet the evolving needs of our clients.” 2

The company advises clients across four business segements:

�� Corporate Risk and Broking — We know how companies can unlock potential through effective risk management. Our clients rely on us to craft strategies to quantify, mitigate and transfer risk, taking advantage of our specialist industry experience and unparalleled market know-how. The result is a new way of embracing risk that drives superior results.

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In this issue, we:

…provide an overview of the recent Willis Towers Watson merger and how this compelling combination of talent, assets and ideas will benefit our clients.

…review the latest trends in the insurance market as it continues to seek a floor with respect to property and casualty rates.

…explore the risk transfer tools available to protect a company’s balance sheet against potential punitive damage awards.

…investigate insurance certificate tracking services available from Willis Towers Watson to real estate companies.

…discuss the steps retailers can take to prepare themselves for a potential terrorist attack.

…cite the IRS announcement that expands the favorable tax treatment of identity protection service expenses incurred by a company or its employees to include expenses made prior to the occurrence of a cyber breach.

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�� Exchange Solutions — A changing health care landscape creates new opportunities. With our combined understanding of regulation and risk, behavioral insights and technology platforms, we create innovative exchange-based services and solutions that enable people to navigate options with confidence and give employers decision-making peace of mind.

�� Human Capital and Benefits — High-performing institutions cultivate and grow talent, carefully balancing costs and rewards. From employee benefits to executive compensation, we take a rounded perspective based on leading-edge thinking, data, analytics and software, unearthing new ways to motivate people, foster well-being and implement solutions that work.

�� Investment, Risk and Reinsurance — Our sophisticated approach to risk helps clients free up capital. We work in close concert with investors, reinsurers and insurers to manage the equation between risk and return. Blending advanced analytics with deep institutional knowledge, we reveal new opportunities to maximize performance.

“Our focus now is on realizing the full potential of this powerful combination for our clients, our people and our investors,” said Dominic Casserley, Willis Towers Watson President and Deputy CEO. “These are two companies with world-class brands, shared values and now, a vastly expanded set of capabilities, people and geographic reach. Together, we can continue to provide the services and solutions our clients have been used to receiving from us, and also create new offerings that they cannot find elsewhere.” 3

Learn more at willistowerswatson.com.

Market Trends Update MarketScout recently reported that the property and casualty composite rate for U.S. business declined by 4% in January of 2016. This overall decrease was led by a 5% reduction in commercial property rates. Richard Kerr, CEO of MarketScout, observed, “Commercial property insurers are getting ready to scratch each other’s eyes out as they fight for market share. We see nothing to prevent commercial property rates from dropping further.” 4 Other noteworthy trends cited in the report are: 5

�� Business interruption, business owners policies, professional liability and directors & officers coverages were more competitively priced compared to December, while umbrella/excess liability experienced a slight increase.

�� Habitational as an industry class experienced a 5% overall decrease.

�� Medium sized accounts (under $250,000) also saw a 5% decrease compared to a 4% decrease for large accounts (over $250,00).

Most experts believe that an improved U.S. economy in 2016 will provide further support to the property and casualty insurance sector. While it is expected that the industry will experience positive underwriting gains in 2016, there are also other potential challenges in play: 6

�� Continued low interest rates will dampen investment yields

�� Downward pricing pressures will continue to squeeze profits

�� Additional industry consolidation through mergers/acquisitions

�� Potential disruptive changes from digital technology (analytics and telematics) that impact traditional insurance models

�� Slower economic growth than expected

We believe that the trend toward lower rates for most buyers will continue in 2016, as discussed in detail in our October 26, 2015 Marketplace Realities report. However, we continue to monitor the financial results reported by the carriers with whom we do business to determine potential changes in their approach to pricing. As always, a major caveat remains with respect to the impact that large catastrophic losses could have on industry profitability, surplus and the direction of rates.

Risk & Capital

Management

Re/insurance

Brokerage &

Advisory

Talent &

Rewards

Benefits

Exchange

Solutions

Powerful Global

Growth Platform

Broad Appeal to Clients Worldwide

Broking

Adv

isor

y

Solutions

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The following chart provides a summary of our rate expectations by line of coverage for 2016.

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The Insurability Of Punitive Damages — A PrimerFew things stoke greater fear in risk managers, outrage in C-Suite executives or the wrath of boards of directors than runaway punitive damages jury verdicts. The fear is well founded, especially when you add the difficulty of insuring such exposures. To be sure, recent headlines demonstrate that the potential impairment to a company’s balance sheet by an uninsured punitive damages verdict is very real. This article will discuss some of the risk transfer products available and touch on the advantages and/or disadvantages of each in mitigating this exposure.

The Bermuda “Occurrences Reported” Form Punitive damages have historically been included in the “Damages” definition of the Bermuda “Occurrences Reported” form and, thus, historically have been considered indemnifiable under the form. Such “automatic” punitive damage coverage has long been considered a true advantage of purchasing coverage under the Bermuda form. These programs have traditionally attached at higher levels, but the sustained soft marketplace has driven those attachments down. Indeed, several companies across diverse industries have taken advantage of these lower attachment points to purchase the broad coverage available under the Bermuda “Occurrences Reported” form in both traditional and multi-year programs.

The “Puni-Wrap” Policy Since the early 90s, Bermuda-based carriers have also offered policyholders a separate stand-alone policy to protect against awards for punitive damages where the domestic “wrapped” policy is otherwise prohibited from providing punitive damage coverage due to public policy, statutory or regulatory considerations. This policy, commonly referred to as the “puni-wrap” policy, is offered on an indemnification basis and triggered by a judgment in a court of law. Payments made under the domestic wrapped policy erode the limits of the puni-wrap policy; therefore, the puni-wrap policy does not provide an insured with additional limits or coverage per se. Nevertheless, a puni-wrap policy provides “gap” coverage for punitive damage verdicts in those 20+ states in which punitive damages are otherwise deemed uninsurable. Premiums on puni-wrap policies historically have ranged from 10% to 15% of the premium for the corresponding domestic “wrapped” policy. The policies carry a per policy minimum premium of $7500.

While the insurance industry has long recognized this gap protection as the perceived value of the puni-wrap policy, perhaps its greater value lies in the alignment of interests puni-wrap coverage creates between an insured and its insurer in the context of litigation. Indeed, the determination of whether and when a case should be settled and the commensurate value of a case often turn on the merits of the allegations related to the punitive damages demand. Alignment of interests between insurer and insured regarding defense strategy, whether to settle or take a case to trial and case outcome are critical to secure the right result. An insurer, obligated to defend and/or reimburse an insured for defense costs regardless of venue, with exposure for both the compensatory and punitive elements of a case, provides an insured relative certainty that the interests of both insurer and insured are aligned for purposes of case outcome. However, where an insurer has an obligation to an insured to defend or reimburse the insured for defense costs but has no obligation to reimburse the insured for the punitive damages part of a verdict (or settlement), differences as to case value inherently exist and may force an insured to contribute the “punitive” component to a settlement or face the potential for a runaway verdict in an undesirable trial. Thus, while the puni-wrap policy serves a vital purpose in creating gap protection, its importance in securing an alignment of interests in the defense of a case cannot be overlooked and, indeed, may serve as its greatest value. This puni-wrap alternative is offered by over a dozen excess insurance carriers’ Bermuda facilities. Consult with your broker regarding which available markets offer the most options for your specific risk profile.

While there have not been a large number of payments made to date under Bermuda puni-wrap policies, there is equally no evidence to indicate that a Bermuda-based insurer has been unable to indemnify an insured for punitive damages due to some regulatory or legal prohibition. Nevertheless, given

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this lack of precedent and the recent heightened regulatory scrutiny of the insurance industry, policyholders and carriers alike have looked to alternative ways to insure against the runaway punitive damages verdict.

The Most Favorable Venue Endorsement The Most Favorable Venue (MFV) Endorsement, touted by domestic carriers as an alternative to a puni-wrap policy, has become a popular coverage enhancement intended to require the contracting parties to apply the law of the jurisdiction most favorable for purposes of determining the insurability of punitive damages. Domestic carriers have been largely successful in securing regulatory approval of such endorsements and offer them in an attempt to compete for business from insureds otherwise forced to go off-shore to secure affirmative punitive damages coverage. The question often raised about these endorsements is: Can two parties, otherwise subject to the laws and regulations of the U.S., contract to apply the law of a specific jurisdiction simply for purposes of avoiding the prohibition against the insurability of such damages by whichever court they find

themselves in? Whatever the answer, as with the puni-wrap alternative discussed above, perhaps the true value of the MFV endorsement lies in its ability to create an alignment of interests between an insured and an insurer in the defense of a case where such alignment would otherwise not exist absent an insurer’s exposure to punitive damages.

While different insurers take different approaches to this endorsement and offer differing language, generally speaking the endorsements include language, such as, the definition of a claim includes punitive and exemplary damages, and the enforceability of this provision shall be governed by such applicable law that most favors coverage for such punitive or exemplary damages. The cost for this endorsement can vary depending on the risk, operating locations and the insurer’s view of the punitive exposure specific to a particular insured. While the endorsement demonstrates a legitimate intent by insurers to provide relative contract certainty as to coverage for punitive damages, the question remains: What is meant by “the laws of any jurisdiction that is most favorable to the insurability of such damages”? While regulators have approved it, the endorsement has yet to meet much heightened scrutiny by the courts and therefore remains a bit of a mystery as to whether (and how) it will actually work.

Conclusion As brokers and consultants to our risk management clients, we are tasked with assessing risk and finding viable insurance solutions for them. While the likelihood of being hit with a punitive damages payment, which cannot be appealed away or reduced, is very small, the risk remains. Indeed, absent explicit punitive damage coverage, the policyholder has an inherent and identifiable gap in coverage. Moreover, there is undoubtedly value in securing alignment of interests between insured and insurer in the defense and outcome of litigation. To those risk managers who ask is there value in purchasing a “puni-wrap” policy? we say simply, in the unlikely but possible event your company gets hit with a punitive damages verdict not otherwise insurable, we would not want to be in the shoes of the one advising the board that “well…we have a $20M verdict against us for which we’re not insured.” If I’m a board member, the first question that comes to mind is, “Could we have been? Is there insurance for such a thing?” The answer is yes, and the ramifications of such a situation would likely be uncomfortable for the messenger.

For more information, contact Robert N. Lane, Esq., Executive Vice President, Willis of New York, Inc. Willis Towers Watson at +1 949 370 1468 or robert.lane@willistowerswatson.com.

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Willis Towers Watson Certificate Tracking Services for Real Estate

Real Estate Firms Have Complex Needs Real estate companies with large-scale operations routinely wrestle with trying to accurately assess risk exposures generated by their core business activities and contractual obligations. These contractual obligations are often complex and necessitate being able to:

�� Quickly and accurately provide and verify evidence of insurance from tenants, property management vendors and suppliers

�� Demonstrate expertise in the area of contractual compliance; verifying coverage types, limits, effective dates; and additional insured status, including endorsement review

�� Secure compliance from tenants and third-party vendors or implement alternatives to force place coverage or deny payment for services

�� Communicate status to all interested parties (e.g., risk management, property manager, legal)

Willis Towers Watson Certificate Tracking Offers A Solution Real estate clients that contract with Willis Towers Watson for assistance with their compliance needs can rely upon a full-service certificate of insurance tracking solution, leveraging state-of-the-art web-based software and comprehensive business services, to:

�� Automate and centralize the administration of third-party insurance compliance for our clients by managing their COIs

�� Evaluate certificates based on contract requirements

�� Review additional insured endorsements where required

�� Monitor compliance, including follow-up for non-compliant vendors

�� Request renewal certificates prior to expiration

�� Generate compliancy status reports

�� Document history of certificate status and review process

�� Store insurance documents electronically for easy retrieval by client

Fast And Accurate Assessments The Willis Towers Watson Certificate Tracking Center provides an efficient way for companies to manage risk from sub-contractors, vendors and suppliers. Willis Towers Watson maintains quality control and service standards that can improve operational performance in the following areas:

�� Accounts payable/receivable functions

�� Accuracy in the verification of the required insurance protection of sub-contractors, vendors and suppliers

�� Compliance with internal quality control standards with documented certificate status, review process and correspondence

Reduced Costs And Risks Willis Towers Watson reduces corporate risk exposure by consulting on contractual compliance standards and by verifying which sub-contractors, vendors or suppliers are current and compliant with respect to the insurance requirements generated by a given contract. Willis Towers Watson can examine the following aspects of a third party’s evidence of insurance:

�� Type, scope, limits and expiration of insurance coverage

�� AM Best financial ratings of carriers

�� Additional insured language and endorsements

�� Project-specific language

Compliance Reporting Willis Towers Watson generates custom reports tailored to our client’s needs and accessible via the client’s portal on a secure website configured to a client’s specific tracking requirements. Reports can track evidence of insurance by multiple categories, including:

�� Contract type (vendors, sub-contractors, etc.)

�� Specific projects or properties

�� Expiration dates

�� Coverage lines

Willis Towers Watson’s rapid process delivers:

�� 72-hour turnaround for transcription and compliance reviews

�� On-demand reports with a myriad of data formats

�� Protected, customer-owned data on a secure, exclusive website

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Reduced Workload Willis Towers Watson efficiently delivers extensive administrative support that saves our clients time and money. Our automated system combined with our expert insurance staff will generate all technical and administrative communications uniquely suited to our client’s needs. Examples of such communication types include:

�� Initial requests for evidence of insurance

�� Renewal notifications for evidence of insurance prior to policy expiration and after expiration

�� Notifying non-compliant parties, clearly communicating insurance deficiencies and setting compliance deadlines

Why Willis Towers Watson?

�� Insurance expertise — Leading global insurance broker

�� Experience with tracking

�� Accuracy

�� Consistent delivery

�� Highest level of customer service

Willis Towers Watson Certificate Tracking Services delivers solutions to North American firms with complex contractual obligations. Using EXIGIS RISKWorks’ state-of-the art web-based software, Willis Towers Watson’s Certificate Tracking Service offers comprehensive business services, including managing certificates of insurance (COI) and storing insurance documents electronically for easy access and monitoring vendor and/or tenant compliance. Based in Nashville, this service is available for both Willis Towers Watson and non-Willis Towers Watson clients. Certificate tracking is ideal for firms in the real estate and construction industries.

For more information: Visit the Certificate Tracking System intranet page or email certificate.tracking@willis.com

Contact a member of your Willis Towers Watson Client Service Team or Sandra Smallwood, Manager, Willis Towers Watson Certificate Tracking Services, at +1 615 872 3849 or sandra.smallwood@willistowerswatson.com

Preparing For a Terrorist Attack:6 Simple Steps For Retailers A recent video released by militants has called for strikes on shopping centers — including Oxford Street and the two Westfield malls in London, the Mall of America in Minnesota, and Canada’s West Edmonton mall. This threat shows no sign of abating, and for retailers any adverse publicity concerning the mishandling of a security or terrorist incident can have lasting reputational and financial consequences. Here is some guidance to assist retailers with strategic security planning.

1. Review Your Risk Assessment And Security Plans Gather as much input as possible when reviewing your risk assessment and security plans. Involving your local police force and security personnel provides an objective view point and helps ensure that your plans are suitable and sufficient. Make sure they are simple, clear, flexible and compatible with existing strategies, as well as ensuring all necessary regulations are met, such as local planning permission, building consents, health and safety and fire prevention requirements.

2. Enhance Staff Training And Communication Reiterate, review and retrain — With high numbers of staff it is important to raise awareness and make sure that everyone (including cleaning, maintenance, contract and concession staff) is vigilant. Staff should be re-briefed to look out for unusual packages, bags or other items in odd places and for people showing particular interest in sensitive, important or less accessible areas. They should also have the confidence to report suspicious items or behaviour. Communication is key to reinforcing this and could include sending out memos to managers and using posters at entrance points and staff areas — regular and consistent communication means people are likely to be more vigilant.

3. Establish Contact With Counter-Terrorism Security Advisers (CTSAs) Someone should have clear responsibility for establishing contact with your local CTSA who can:

�� Help assess the threat, both generally and specifically

�� Advise on physical security equipment

�� Arrange contact with emergency services and local authority planners to develop response and contingency plans

�� Identify trade bodies for the supply and installation of security equipment

�� Advise on search plans

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If a CTSA identifies any security vulnerabilities, they can alert the appropriate authorities (e.g., emergency services) that an inspection is necessary.

4. Maintain Good Housekeeping On a practical level this may mean the use of clear plastic bags for waste disposal or establishing a procedure for checking the registration of contractors’ vehicles. On a more strategic level this might mean ensuring an organization’s security system has an uninterruptible and regularly tested power supply. All equipment, from IT systems to fire extinguishers, must be regularly checked and monitored for interference.

5. Control Building Access Terrorists need physical access to a building to carry out an attack. In public areas this is difficult to control, so review and consider enhanced monitoring of CCTV, heightened physical security and staff awareness, and other means of entry, such as staff entrances, delivery/collection points and maintenance access.

Also consider who is gaining access; for example, temporary staff, contractors and delivery persons. A balance must be found between business needs and effective security, and any system must comply with relevant legislation.

6. Ensure Stringent Personnel Security Some external threats, whether from criminals, terrorists or competitors seeking a business advantage, may rely upon the cooperation of an insider. This could be an employee, a contractor or an agency staff member who has authorized access to your premises.

Personnel security policies and procedures limit the risk of staff or contractors exploiting their legitimate access to an organization’s assets or premises for unauthorised purposes, while pre-employment screening establishes whether an applicant has concealed important information or otherwise misrepresented themselves.

To find out more about the steps retailers can take to prepare for the threat of terrorism, read our latest risk insight: Security and Terrorism Guidance for Retailers.

For more information, contact a Willis Towers Watson Associate or Kelvyn Sampson, UK Industry Practice Leader – Retail at+44 1473 222990 or kelvin.sampson@willistowerswatson.com.

IRS Expands Tax Treatment for Employer-Provided Identity Protection ServicesIn Announcement 2015-22, released on August 13, 2015, the Internal Revenue Service (IRS) stated that it would not require the value of identity protection services to be treated as taxable income when provided to individuals whose personal information may have been compromised by a data breach. The IRS has now announced (Announcement 2016-02) that it is expanding this tax treatment to identity protection services provided to employees or other individuals before a breach occurs (whether or not a data breach has occurred). While consideration still needs to be given to potential state and local tax consequences, this is good news for both the employers providing such benefits and to the employees receiving them.

Specifically, the announcement states:

�� Individuals will not have to include in gross income the value of identity protection services provided by the individual’s employer or by another organization to which the individual provided personal information (e.g., name, Social Security number, or banking or credit account numbers).

�� Employers providing identity protection services to their employees will not have to include the value of those services in the employees’ gross income and wages, nor will they have to report these amounts on an information return (e.g., Form W-2 or Form 1099-MISC) filed with respect to such individuals.

The announcement does not apply to cash received in lieu of identity protection services. It also does not apply to proceeds received under an identity theft insurance policy (the treatment of such recoveries continues to be governed by existing law).

The Willis Towers Watson Human Capital Practice offers a variety of health care reform-related tools, publications and presentations. We invite you to click here to review the archive of available information. We update our site as new developments occur and new guidance is published, so please check back often.

About Willis Towers WatsonWillis Towers Watson (NASDAQ: WLTW ) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 territories. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com.

Copyright © 2016 Willis Towers Watson. All rights reserved.WTW-NA-2016-15328

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Willis Towers Watson is an insurance consulting and brokerage firm. We are not attorneys and this publication is not to be considered legal advice. Please consult with your attorneys prior to incorporating any of our suggestions into an actual contract or agreement.

ContactsFor additional information on this issue’s topics, or any others for which our Real Estate & Hotel Practice might provide assistance, please visit our website at willistowerswatson.com.

Brian RuaneDirector, Real Estate Practice+1 212 915 7971brian.ruane@willistowerswatson.com

Steve SachsDirector, Real Estate Practice+1 410 584 8935steve.sachs@willistowerswatson.com

1 https://www.willistowerswatson.com/en/press/2016/01/willis-towers-watson-merger-successfully-completed 2 Ibid. 3 Ibid. 4 http://www.programbusiness.com/News/MarketScout-2016-PC-Business-Opens-with-4-Percent-Rate-Reduction?utm_source=WhatCountsEmail&utm_medium=DNF_List_020816&utm_campaign=DNF_Template_2015 5 http://www.insurancejournal.com/news/national/2016/02/05/397778.htm 6 http://www.insurancejournal.com/news/national/2016/01/04/393592.htm