Hertz 2009 Annual Report Download - page 41

ITEM 1. BUSINESS (Continued)
Risk Management
Three types of generally insurable risks arise in our operations:
• legal liability arising from the operation of our cars and on-road equipment (vehicle liability);
•legal liability to members of the public and employees from other causes (general liability/
workers’ compensation); and
•risk of property damage and/or business interruption and/or increased cost of working as a
consequence of property damage.
In addition, we offer optional liability insurance and other products providing insurance coverage, which
create additional risk exposures for us. Our risk of property damage is also increased when we waive the
provisions in our rental contracts that hold a renter responsible for damage or loss under an optional loss
or damage waiver that we offer. We bear these and other risks, except to the extent the risks are
transferred through insurance or contractual arrangements.
In many cases we self-insure our risks or insure risks through wholly-owned insurance subsidiaries. We
mitigate our exposure to large liability losses by maintaining excess insurance coverage, subject to
deductibles and caps, through unaffiliated carriers. For our international operations outside of Europe,
we maintain some liability insurance coverage with unaffiliated carriers. We also maintain property
insurance through our captive insurer, Probus Insurance Company Europe Limited, or ‘‘Probus’’ (with
the risk reinsured with unaffiliated insurance carriers) in Europe, subject to deductibles.
Third-Party Liability
In our domestic operations, we are required by applicable financial responsibility laws to maintain
insurance against legal liability for bodily injury (including death) or property damage to third parties
arising from the operation of our cars and on-road equipment, sometimes called ‘‘vehicle liability,’’ in
stipulated amounts. In most places, we satisfy those requirements by qualifying as a self-insurer, a
process that typically involves governmental filings and demonstration of financial responsibility, which
sometimes requires the posting of a bond or other security. In the remaining places, we obtain an
insurance policy from an unaffiliated insurance carrier and indemnify the carrier for any amounts paid
under the policy. As a result of such arrangements, we bear economic responsibility for domestic vehicle
liability, except to the extent we successfully transfer such liability to others through insurance or
contractual arrangements.
For our car and equipment rental operations in Europe, we have established two wholly-owned
insurance subsidiaries, Probus, a direct writer of insurance domiciled in Ireland, and Hertz International
RE Limited, or ‘‘HIRE,’’ a reinsurer organized in Ireland. In European countries with company-operated
locations, we have purchased from Probus the vehicle liability insurance required by law, and Probus
reinsured the risks under such insurance with HIRE through December 31, 2006. Effective January 1,
2007, reinsurance is provided by another subsidiary of ours, HIRE Bermuda Limited. Thus, as with our
domestic operations, we bear economic responsibility for vehicle liability in our European car and
equipment rental operations, except to the extent that we transfer such liability to others through
insurance or contractual arrangements. For our international operations outside of Europe, we maintain
some form of vehicle liability insurance coverage with unaffiliated carriers. The nature of such coverage,
and our economic responsibility for covered losses, varies considerably. In all cases, though, we believe
the amounts and nature of the coverage we obtain is adequate in light of the respective potential
hazards.
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