Hertz 2012 Annual Report Download - page 47

ITEM 1. BUSINESS (Continued)
Our domestic rental contracts for both car and equipment rental as well as our domestic and
international long-term fleet leasing contracts, typically provide that the renter will indemnify us for
liability arising from the operation of the rented vehicle or equipment (for car rentals in certain places,
though, only to the extent such liability exceeds the amount stipulated in the applicable financial
responsibility law). In addition, many of HERC’s domestic rental contracts require the renter to maintain
liability insurance under which HERC is entitled to coverage. While such provisions are sometimes
effective to transfer liability to renters, their value to us, particularly in cases of large losses, may be
limited. The rental contracts used in our international operations sometimes contain provisions relating
to insurance or indemnity, but they are typically more limited than those employed in our domestic
operations.
In our domestic car rental operations, we offer an optional liability insurance product, Liability Insurance
Supplement, or ‘‘LIS,’’ that provides vehicle liability insurance coverage substantially higher than state
minimum levels to the renter and other authorized operators of a rented vehicle. LIS coverage is
provided under excess liability insurance policies issued by an unaffiliated insurance carrier, the risks
under which are reinsured with a subsidiary of ours, HIRE Bermuda Limited. 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 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 the countries of the European Union, the regulatory environment for insurance
intermediaries is evolving, and we cannot assure you 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.
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,
2012, this liability was estimated at $332.2 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.
23