Benefits: Postcards from Europe

London

Paris

Munich

Luxembourg

Vevey

What we’ll cover…..practical thoughts for those who have “done it”

For those who have already dipped their toe into the vast possibilities for insuring benefits through a captive, the panelists will help participants into deeper waters through a case study approach presented by those who have “done it.” Among the important and practical topics to be covered are:

The annual captive cycle

What do these guys do?

Premium allocation/ setting premiums– what does this mean?

Reviewing the financials

What do you want from a provider?

Internal stakeholders

What are some of the key challenges

Getting it right

Joanne ArmenioDirector Global BenefitsChicago

Bill FitzpatrickVP - Corporate Risk Benefits London

Kareena HookerGlobal Head of Insurable Employee BenefitsLondon

Overview of the three captives

Captive Name

Parent Sponsor

Annual EB

Premium ($)

Domicile

Effective Date

Benefits Included

Fronting Partners Benefit Lines

Berkeley Re Mondelēz 18m Dublin 2009 Generali, Maxis Life, Disability, Medical,

Accident

HSBC Insurance (Bermuda)

Limited

HSBC 50m Bermuda 2008 Allianz, Maxis, Generali Life, Disability, Medical, Accident

Marias Falls

Deutsche Post DHL 100m Bermuda 1996

Maxis, Generali, Prudential, Liberty

Mutual, Legal & General, AXA and Cigna

Life, Disability, Medical, Accident, Expat Medical,

BTA, US LTD

The Captive,Berkeley Re

• Administer program• Ensure payment of

premiums, claims and charges

• Report results to Captive Board

Fronting Networks,Generali and Maxis

Strategic Advisers,Towers Watson

• Advice to Captive• Updates on best practice• Analysis of quarterly

results

Captive Manager,Aon

• Daily management of Captive

• Review pricing of contracts

• Regulatory compliance

Irish RegulatorCaptive BoardResponsible for Captive

Captive based in Dublin, so subject to Irish regulation

Mondelēz International

Who does what and how does it work

Who does what and how does it work

Market Premium Local Insurer

DHL Business UnitsInsurance Policy

CONVENTIONAL MARKET INSURANCE

MAXIS or Generali Local Insurer

ClaimsCeded Premium& 100% Risk

DP DHL ReinsuranceSubsidiary

*Net Premium = Gross Premium less the global program discount (20-25%)

^Ceded Premium = Net premium less administration, taxes & fronting fees

CAPTIVE INSURANCEMAXIS

Generali

Who does what and how does it work

INSURABLE RISK

HR and PROCUREME

NT

CENTRAL IEB TEAM

• Group entities must comply with policies and processes established by the Insurable Risk Function applicable to corporate insurance programmes. 

• IEB Standard applies to Life, Disability and Medical programmes, covering: Financing; Renewal Process; and Governance.• The aim is to achieve: Global Consistency; Improve Efficiency; Reduce Risk.

Key

Accountable The Function ultimately responsible for the fulfilment of the Standard

Responsible The Functions / body responsible for undertaking  the work to fulfil the Standard

Risk Financing Providers involved in risk financing

Who does what and how does it work

SELF-FUNDED PLANS• Third Party Administrator• Medical Trust Vehicle

EMPLOYEE BENEFITS POOL• Preferred Insurer• HSBC Insurance (Bermuda)

Limited• Preferred Broker

PUBLIC

We see activity falling into 3 “buckets”

These activities occur throughout the year and can cross over buckets

Marketing Day-to-Day Stakeholder Management

New business opportunities Renewals with locals Marketing the concept Internal resource/consult

Managing renewals Liaising with providers Local country issues

resolution Negotiating T&Cs local global

Review of reports Data analysis Reviewing performance

Engaging stakeholders Leadership HR Finance Legal Tax

How are rates determined when you use your own captive?

Let’s take an example … Captive assumes risk and holds 100% of the premiums and reserves (where legally possible)

Program includes life, disability, medical, accident, voluntary or employee-paid insurances

Use fronting companies to issue local policies, provide local administration and rate recommendation

Annual premiums determined by Captive based on experience risk philosophy?

Local operations continue to determine benefit coverages in line with HR philosophies (local and global)

Annual premium paid

Premium insurers set by providers

Renewal rates finalised

Approved by Captive

Communicated locally

Census data to providers

Rates recommended by local underwriters

Premium allocation meeting

Data requests to local offices

Mid year review of rates

Initial budgeting

Determine potential adjustments

15 January1 December1 NovemberMid OctoberMid SeptemberAugust

Reviewing the financials….how important?

Fee Management Central administration fees Local fronter/administration fees Broker commissions

Claims and Reserves Bordereau reviews Actuarial reviews of loss reserves Provide reserve opinions if required Performance testing of loss reserve estimates

Capital and Reinsurance Evaluate risk retention and reinsurance levels relative to capital Solvency margin analysis

Business planning Developing financial models to compare modified future business scenarios against status quo Identify and analyse development or expansion opportunities

What do you want from a provider?

Solid long-term global partner Good geographical coverage – both countries and products Strong control over local partners Knowledge of operating under captive model throughout Network

Strong technical ability Central technical/underwriting support to help decisions on pricing and whether to accept risks. Risk management capabilities and being able to ensure that local offices price and manage claims prudently

Cash flow Transparent costing – fronting, solvency, admin, reinsurance

Willing to work with different premium frequencies and cede to captive Cession of reserves to captive

Service More service required than pooling Data and reporting accuracy Monthly bordereaux if needed? Annual reporting timely – work with captive manager Meetings Flexibility to make things happen

Reinsurance Offer what the captive wants

What do you need to “get it right” to manage an on-going successful EB captive?

Recognise that the captive is a long-term strategy that involves active management by the corporation

Be sure objectives are clear and priorities identified, e.g., cost reduction, cash flow enhancement

Clear ownership within your business

Effectively coordinate internal units involved in captive assessment, e.g., finance, HR, risk management

Seek management support and create communication plan for a smooth implementation

Explain that: The reinsurance agreement between the insurance company and the captive will not affect local

contracts between employee/employer and local insurance company Extent of cover and scope of benefits not affected by implementation

More?

What are people talking about in Europe…Are these “Hot Topics” over here

towerswatson.com

•Vendors and Market Fronting network structures and capabilities are different and developing Solvency II impact on EU based vendors and captives

Both financial implications and increased governance and reporting

•Governance Mapping out the roles of different stakeholders in managing global arrangements Deciding on the appropriate pricing model (and reserving) Ensuring appropriate servicing from your fronting vendors through putting in workable SLAs/ KPIs Understanding and managing risks

Pandemic exposures Estimated Maximum Losses (EMLs) Appropriate protection

•Data Use of data to drive risk management and ultimately interventions Analysis of trends can be used to implement targeted cost control measures

Immediate impact – increasing deductibles, imposing exclusions, reducing limits, excluding high cost facilities etc

Longer-term strategic initiatives – health & wellbeing and wellness strategies

Questions