London
09 March 2017
Reporter: Becky Butcher

Increase in captive use to limit EB cost


Multinational pooling and captives are being increasingly used to limit the cost of insurable employee benefits globally, according to research by Willis Towers Watson.

The research showed that the rising cost of employee benefits around the world is prompting more international companies to set up multinational pooling and employee benefit captive arrangements in order to improve the performance of their insurable employee benefit plans.

It suggested that the primary objective for setting up such arrangements is usually to lower premium costs or to reduce cost increases to below market inflationary levels.

Pro-actively managed multinational pools and employee benefit captives can generate savings of over 14 percent and 25 percent, respectively, on insured benefit costs, according to the research.

It also found that some captive arrangements delivered even higher returns, because companies actively discounted their premiums up-front before reinsuring them to their captives.

Roger Beech, director of global services and solutions at Willis Towers Watson said: “The increasing costs of insurable employee benefits are hitting the radar of senior executives more regularly, with the result that there is greater urgency to understand and manage the drivers of these costs and their growth.”

He added: “The annual costs for insurable employee benefits can easily exceed $25 million for a company with 20,000 employees around the world, so the use of multinational pooling and employee benefit captives can deliver significant cost savings for many companies. As multinational companies seek out cost management opportunities, approaches to create a competitive advantage, taking a proactive and considered approach to the management of insurable benefits results in relatively easy savings.”

In 2016, in terms of location for multinational pooling performance, Sweden produced the largest savings as a percentage of total premium pooled, 41 percent, while contracts in Canada were the worst performances with average returns of 16 percent.

For employee benefits captives, variations in profitability were even wider, with Japan producing the largest returns at 55 percent, while Ireland only gaining returns of 24 percent.

Beech commented: “The findings do not mean that companies should automatically include every benefit plan in Sweden or Japan, or exclude every contract in Canada or Ireland. Rather they should conduct due diligence and consider their own objectives, claims experience, premium rates, network retention levels and other factors before adding or continuing to include any contract in their pool or captive.”

More news
The latest news from Captive Insurance Times
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
R&Q completes assignment of deductible liabilities
21 September 2017 | London | Reporter: Jenna Lomax
The liabilities relate to workers’ compensation policies issued between 1988 and 2012 to a US corporate from a large US carrier
A.M. Best affirms Eni’s captive ratings
21 September 2017 | London | Reporter: Becky Butcher
A.M. Best has affirmed the financial strength rating of “A (Excellent)” and the long-term issuer credit of “a” of Eni Insurance Designated Activity Company (EID), a captive of Eni, a multinational oil and gas company based in Italy
ConocoPhillips captive ratings affirmed ‘excellent’
21 September 2017 | Oldwick | Reporter: Becky Butcher
A.M. Best has affirmed the financial strength rating of “A (Excellent)” and long-term issued credit rating of “a” of Sooner Insurance Company (Sooner), the captive insurer of ConocoPhillips
GFSC addresses Solvency II and IAIS capital standards project
20 September 2017 | St Peter Port | Reporter: Becky Butcher
The Guernsey Financial Services Commission (GFSC) has launched a discussion paper seeking the industry’s feedback on the evolution of the island’s global and European insurance capital standards
NCCIA clarifies 831(b) memo
20 September 2017 | Charlotte | Reporter: Becky Butcher
The North Carolina Captive Insurance Association has issued a statement to clarify a memo discussing the 831(b) tax election and the impact on the state’s captive insurance industry should Congress repeal the election
XL Group selects Dublin as post-Brexit location
20 September 2017 | London | Reporter: Becky Butcher
XL Group has revealed its plans to move its principal EU insurance company, XL Insurance Company, from the UK to Ireland in 2018, in response to Brexit
R&Q completes novation from Cayman captive
20 September 2017 | Cayman Islands | Reporter: Becky Butcher
Randall & Quilter (R&Q) Holdings has completed the novation of reinsurance policies issued between 2006 and 2011 from a Cayman domiciled group captive