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Captives and employee benefits

Captives and employee benefits. Jeremy Hill Aon Consulting International Benefits Practice 27 August 1999. Jeremy G. Hill MA FIA Senior Consultant, International Benefits Practice. Aon Consulting Limited 15 Minories,

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Captives and employee benefits

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  1. Captives and employee benefits Jeremy HillAon Consulting International Benefits Practice27 August 1999

  2. Jeremy G. Hill MA FIASenior Consultant, International Benefits Practice Aon Consulting Limited 15 Minories, London EC3N 1NJ DX: 543 London CityTel: +44 (0)20 7767 2000 Fax: +44 (0)20 7767 2011Direct: +44 (0)20 7767 2163 Mobile: +44 (0)7747 693831e-mail: jeremy.hill@aonconsulting.co.uk Regulated by the Personal Investment Authority for investment business

  3. Employee benefits in a multinational • Fragmented approach • Social security provision • Local legislation • Global policies not available • Multinational pooling first step solution

  4. Multinational Pooling • Umbrella contract • Use of networks of insurers • Spread of risk • Increased negotiating power • Easier transfer of personnel • Improved reporting

  5. Types of network • Wholly owned: e.g. Swiss Life, Zurich Life • Alliances: AIG/Winterthur, Aetna/Generali • Partnerships: IGP, Insurope

  6. Types of pool • “Convenience” pools • Negotiated pools • Treatment of annual result • Stop loss basis • Loss carry forward basis • “Loss free” basis • Captive solution

  7. Captive reinsurance • Use local insurers to: • issue local policy for compliance and tax purposes • handle claims and administration • Use pooling network to increase efficiency: • no need to negotiate with each local insurer • captive’s expenses reduced

  8. Case study - background • AB Volvo • Decentralised structure • Lack of understanding of local structure • 25,000 staff outside Sweden

  9. Company objectives • To understand current pooling position • To rationalise pooling strategy • To maximise cost savings • To involve the captive if appropriate • To introduce a means of control

  10. Outline of the process • Information gathering • from subsidiaries • from pooling networks • Networks asked for quotations • Network selection • Implementation

  11. Benefits covered

  12. Current financial position

  13. Current financial position

  14. One pool scenario

  15. Advantages of using a captive • Greater control of premiums and reserves • Access to reinsurance market • Increase in total premium in the captive • Diversification of captive's risk portfolio • Control/monitoring of information

  16. Restrictions on captive involvement • Pension premium • Accident policies? • Medical policies? • US premiums?

  17. Other captive considerations • Single network • Captive administration costs • Captive domicile • Retrocession of risk from captive • Restructuring of local premium payment

  18. Key differences • Quarterly settlement of claims • Networks may not be single insurers • US difficult to involve • Low penetration of market • Small market for reinsurance of aggregate

  19. Step by step approach • Understanding of current pooling situation • Consideration of pooling options • Consolidation of pools with reinsurance of results • Cession of risk and premiums to captive

  20. Captives and employee benefits Jeremy Hill27 August 1999

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