08 October 2015
Reporter: Mark Dugdale

Employee benefit captives climbing

The number of captives writing employee benefits has increased 10-fold since 2007, according to Towers Watson’s captive user group.

The Towers Watson captive user group, a specialist forum made up of 650 specialists who meet in Europe and the US every year, found that 77 captives implement employee benefits today, up from just nine in 2004.

Towers Watson polled 41 out of the 77 employee benefit captives operating globally on their current use of captive vehicles and how they anticipate this will change in the next five years.

The main priority for 67 percent of the group is to save cost on employee benefits and other financial benefits. A further 24 percent cited control and improving claims data, which in turn would help to manage benefit costs, according to Towers Watson.

Although “cost containment is always at the heart of any captive decision”, according to Mark Cook, director at Towers Watson, the survey also found that 62 percent of those questioned use their captives for death and disability benefits and medical insurance, while 11 percent also include defined benefit retirement savings.

In the future, 48 percent said they are considering a captive pension transaction, either in the next three to five year or within the next 12 months.

Cook continued: “The breadth and depth of captive use continues to expand as more companies realise the potential to mitigate the ever spiralling costs of employee benefits. Companies with a desire to take on additional risk can reap the biggest benefits but careful assessment is vital before launching into any kind of self-insurance as only strong, well-managed captives succeed.”

He added: “While cost savings are a clear motivation behind setting up a captive in the first place, Towers Watson’s 2014 Multinational Pooling and Captives research study revealed that the success of individual captives varies significantly.”

“While the median annual return for global employee benefit captives was just over 11 percent on total plan premiums, there was a wide disparity in the profitability of individual captives with the most successful yielding 65 percent returns while the lowest performing were left with a –77 percent deficit.”

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