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Towers Watson captive study pinpoints Guernsey advantage

10 March 2015

Financing employee benefits through a captive provides substantial savings opportunities for multinational companies, according Towers Watson's multinational pooling and benefit captives study.

The global professional services company analysed 52 captive reports across five insurance networks and 14 research study participants, which showed that multinationals using a captive for financing global employee benefits yielded annual median returns of 11.3% on total plan premiums. Their annual average returns were 5.1%, with the difference between the median and mean largely attributable to the experience of one company with significant losses, according to Towers Watson. With that captive excluded, the mean and median returns were very similar, and higher than those achieved under multinational pooling arrangements (6.1%).

"Annual costs for multinationals' employee health and risk benefits are enormous. Global benefit leaders need to manage these long-term costs if their companies are to remain competitive in the global war for talent and keep pace in their marketplaces. Captive arrangements can help them manage these costs while providing data and insights critical to effectively managing their employee benefit programmes around the world," said Gerry Winters, senior international consultant at Towers Watson.

Towers Watson's study also revealed wide variations in the profitability of individual contracts within captive arrangements based on geography.

Guernsey policies produced the largest dividends, at 65%, followed by Japan (61%) and Germany (59%). Benefit contracts in Denmark, with average returns of -77%, were the worst performers, followed by India (-42%) and Egypt (-39%). Profitability also varied based on coverage types. Life and accident insurance contracts were the most consistently profitable, with returns of 23%. Stand-alone medical contracts were consistent deficit producers, with average returns of -2%.

Mr Winters added: "Captives are becoming an established part of the employee benefit landscape for multinationals alongside a variety of other techniques. Companies with large multinational pooling arrangements tend to have an easier transition to a captive strategy and solution, especially if they pool with a network that is also strong in captives.

"As our data illustrates, captives can provide an even greater opportunity for financial savings, particularly for companies with the capacity and desire to take on additional risk in employee benefits on a global basis. Captive strategy and solutions should be considered carefully and most large to mid-size multinational companies that assess this properly find they have such capacity."

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