Avis 2011 Annual Report Download - page 17

11
Ancillary Products and Insurance Coverages
We supplement our daily truck rental revenue by offering customers a range of ancillary products. We rent automobile
towing equipment and other moving accessories such as hand trucks, furniture pads and moving supplies, as well as where2
GPS navigation units. We also make available to customers a range of optional liability-limiting products and coverages such
as physical damage waivers, automobile towing protection, personal accident and cargo insurance and supplemental liability
insurance. These ancillary products enhance our appeal to consumers by offering customers “one-stop” moving services.
Distribution
Budget’s truck rental business is offered through a national network, which included approximately 1,850 dealers as of
December 31, 2011. These independently-owned dealers generally operate self-storage facilities, rental centers, hardware
stores, service stations and other similar retail service businesses. In addition to their principal businesses, the dealers rent our
light- and medium-duty trucks to consumers and to our commercial accounts and are responsible for collecting payments on
our behalf. The dealers receive a commission on all truck rentals and ancillary equipment rentals. Generally, agreements with
dealers may be terminated by either party subject to certain conditions.
Competition
The truck rental industry is characterized by intense price and service competition as well as competition based on location
(proximity to customer). We compete with a large number of truck rental companies throughout the country, including U-
Haul International, Inc., Penske Truck Leasing Corporation, Ryder System, Inc., Enterprise Rent-A-Car Company and many
others.
Seasonality
Our truck rental operations are subject to seasonal demand patterns, with generally higher levels of demand occurring during
the late spring and summer months when most self-moves occur, with the third quarter typically being our busiest quarter.
Generally, December is also a strong month due to increased retail sales activity and package deliveries.
INSURANCE
We generally assume the risk of liability to third parties arising from vehicle rental services in the United States, Canada,
Puerto Rico and the U.S. Virgin Islands, in accordance with the minimum financial responsibility requirements (“MFRs”)
and primacy of coverage laws of the relevant jurisdiction. In certain cases, we assume liability above applicable MFRs, but to
no more than $1 million, pursuant to contractual obligations. In cases where we assume liability above applicable MFRs or in
cases involving a negligent act on the part of the Company, we retain exposure for up to $1 million per occurrence and up to
$10 million per occurrence, respectively, through a combination of self-insurance and insurance coverage provided by an
unaffiliated insurance carrier and reinsured by us. We provide such reinsurance through our captive insurance subsidiary,
Constellation Reinsurance Co., Ltd. We purchase insurance coverage for exposures of more than $10 million per occurrence
from a combination of unaffiliated excess carriers.
We insure the risk of liability to third parties arising from vehicle rental services in Europe in accordance with regulatory
requirements, through a combination of unaffiliated carriers and our captive insurance subsidiary, AEGIS Motor Insurance
Limited, which provides reinsurance to third-party insurers, subject to certain limits. AEGIS purchases reinsurance to limit
its exposure. We insure the risk of liability to third parties in Argentina, Australia and New Zealand through a combination of
unaffiliated carriers and one of our affiliates. These carriers provide coverage supplemental to minimum local requirements.
When a customer elects to purchase supplemental liability insurance, with limits of either $1 million or $2 million, we largely
retain economic exposure to loss, since the insurance is provided by an unaffiliated carrier that is reinsured by our
Constellation Reinsurance Co., Ltd. subsidiary. Additional personal accident insurance offered to our customers in Europe is
underwritten by a third-party insurer, and reinsured by our Avis Europe International Reinsurance Limited subsidiary.
THE AVIS EUROPE ACQUISITION
On October 3, 2011, we completed the acquisition of all of the outstanding shares of Avis Europe plc for a purchase price of
315 pence per share in cash, or approximately $1.0 billion. Avis Europe had been our largest independently-owned licensee,