Hertz 2007 Annual Report Download - page 44

provided under excess liability insurance policies issued by an unaffiliated insurance carrier, the risks
under which are reinsured with a subsidiary of ours. As a consequence of those reinsurance
arrangements, rental customers’ purchases of LIS do not reduce our economic exposure to vehicle
liability. Instead, our exposure to vehicle liability is potentially increased when LIS is purchased, because
insured renters and other operators may have vehicle liability imposed on them in circumstances and in
amounts where the applicable rental agreement or applicable law would not, absent the arrangements
just described, impose vehicle liability on us.
In both our domestic car rental operations and our company-operated international car rental operations
in many countries, we offer optional products providing insurance coverage, or ‘‘PAI/PEC’’ coverage, to
the renter and the renter’s immediate family members traveling with the renter for accidental death or
accidental medical expenses arising during the rental period or for damage or loss of their property
during the rental period. PAI/PEC coverage is provided under insurance policies issued by unaffiliated
carriers or, in some parts of Europe, by Probus, and the risks under such policies either are reinsured
with HIRE or another subsidiary of ours or are the subject of indemnification arrangements between us
and the carriers. Rental customers’ purchases of PAI/PEC coverage create additional risk exposures for
us, since we would not typically be liable for the risks insured by PAI/PEC coverage if that coverage had
not been purchased.
Our offering of LIS and PAI/PEC coverage in our domestic car rental operations is conducted pursuant to
limited licenses or exemptions under state laws governing the licensing of insurance producers. In our
international car rental operations, our offering of PAI/PEC coverage historically has not been regulated;
however, in some countries of the European Union, the regulatory environment for insurance
intermediaries is rapidly evolving, and we cannot assure you either that we will be able to continue
offering PAI/PEC coverage without substantial changes in its offering process or in the terms of the
coverage or that such changes, if required, would not render uneconomic our continued offering of the
coverage. Due to a change in law in Australia, we have discontinued the sales of insurance products
there.
Provisions on our books for self-insured vehicle liability losses are made by charges to expense based
upon evaluations of estimated ultimate liabilities on reported and unreported claims. As of December 31,
2007, this liability was estimated at $343.0 million for our combined domestic and international
operations.
Damage to Our Property
We bear the risk of damage to our property, unless such risk is transferred through insurance or
contractual arrangements.
To mitigate our risk of large, single-site property damage losses in the United States and in Europe, we
maintain property insurance in the United States with unaffiliated insurance carriers (with a
per-occurrence deductible of $10 million) and utilize our insurer, Probus (with the risk reinsured with
unaffiliated insurance carriers), with a per-occurrence deductible of $2.5 million in respect of vehicle
damage, and $50,000 in respect of all other losses, in Europe. For our international operations outside
Europe, we also maintain property insurance coverage with unaffiliated carriers in such amounts as we
deem adequate in light of the respective hazards, where such insurance is available on commercially
reasonable terms.
Our rental contracts typically provide that the renter is responsible for damage to or loss (including loss
through theft) of rented vehicles or equipment. We generally offer an optional rental product, known in
various countries as ‘‘loss damage waiver,’’ ‘‘collision damage waiver,’’ ‘‘theft protection’’ or ‘‘accident
excess reduction,’’ under which we waive or limit our right to make a claim for such damage or loss. This
product is not regulated as insurance, but it is subject to specific laws in roughly half of the U.S.
jurisdictions where we operate.
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