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The blended risk reinsurance program that Judy Lindenmayer hammered out for FMR Corp.'s Bermuda-based captive insurer has saved millions of dollars since 1992.

FMR, better known as Fidelity Investments, realized the savings by using the then-novel approach of buying one reinsurance program to cover multiple risks.

The captive, Fidvest Ltd., writes up to $10 million in limits for various Fidelity risks and has up to $8 million of excess of loss reinsurance under an annual program. The reinsurance includes some free reinstatements of limits.

Two of the risks the captive insurer writes are Fidelity's self-insured retentions for its corporate bond and stockbroker errors and omissions exposures under its corporate concentric risk insurance program.

Fidelity is not subject to a retention on the other risks in the corporate concentric risk program.

The concentric risk coverage combines into a single program the limits for numerous professional liability and fidelity bond coverages for Fidelity businesses-not including its mutual fund management operations.

Fidelity has a separate concentric risk program that covers the fidelity and professional liability exposures of its mutual fund management operation, but the captive does not participate in that program.

Other risks that the captive writes and that are reinsured under the blended-risk program are:

Software E&O liability, which covers claims arising out of software developed and sold by various Fidelity companies.

Partnership liability, which covers Fidelity against claims alleging imprudent business activities in its general or limited partnerships.

E&O coverage for the trustees of Fidelity's charitable gifts foundations.

Fidvest retains the first $10 million of losses for all of those exposures, except the trustees E&O risk. The captive retains only the first $5 million of those losses.

Trustee E&O losses excess of $5 million are covered by Fidelity's new financial insurance product, which in that situation would respond like a difference-in-conditions policy. The financial insurance product also would cover non-concentric risk losses exceeding the captive's $10 million retention.

The reinsurance program, placed by the New York and London Fin Pro divisions of J&H Marsh & McLennan Inc., is written on a quota-share basis by American International Group Inc. and underwriters at Lloyd's of London.

The London market had not attempted the blended-risk reinsurance approach at the time Fidelity came to Lloyd's with that concept, according to Ms. Lindenmayer and Thomas F. McKenna, an M&M managing director in New York.

"It was really revolutionary at that time," Ms. Lindenmayer said.

"It was very difficult to put together," noted Donna M. Manzo, corporate risk manager and a member of Ms. Lindenmayer's staff. She said Lloyd's was extremely hesitant about signing on to the program.

Ms. Lindenmayer and Ms. Manzo said no underwriter embraced the idea initially for a couple of reasons:

The shared limits would substantially reduce premiums, and the underwriters said they were not sure how their retrocessionaires would respond to the idea.

Ms. Manzo estimates that the reinsurance program's structure has saved Fidelity $6 million since its inception nearly five years ago.

Fidelity's good loss history is an important reason Fidelity decided to go with the blended-risk reinsurance program rather than line up separate limits for its exposures, Ms. Manzo noted. "For us, it's worth the risk to take one limit and pay for a reinstatement, given our loss history and the savings we obtained taking one limit."

Under the reinsurance program, Fidvest, which is managed by Marsh & McLennan Management Services (Bermuda) Ltd. in Hamilton, retains the first $5 million of its first loss. If the loss exceeds $5 million, the captive cedes up to the next $5 million of loss to the reinsurers.

For subsequent losses after a $10 million loss, the captive retains the first $2 million.

If the second loss exceeds $2 million, Fidvest cedes up to the next $3 million of loss to its reinsurers under its original reinsurance limits.

But, Fidvest is protected by a free reinstatement of limits and the option to purchase second and third reinstatements, if necessary, at a predetermined cost.

Therefore, if it is hit with a second $10 million loss, $5 million of it excess of $5 million would be covered by the first free reinstatement.

If Fidvest faced a third $10 million loss, $3 million of losses excess of the captive's retention would be covered by the free reinstatement. The remaining $5 million would be covered under the second reinstatement.

Another $10 million loss would be covered similarly, with a portion of the second reinstatement and a portion of the third reinstatement covering the loss over the captive's retention.