SPONSORED FEATURE ZURICH

Breathing life into captives

As more corporations recognise the advantages of integrating life with non-life insurance in their existing captive programmes, the question is how best to reap nancial and non nancial rewards while at the same time managing sensitive employee-focused cover. Dr Paul Whrmann and Paolo Marini of Zurich examine the debate that has consequently arisen
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e have reached a point where businesses understand the dynamic opportunities of integrating life coverage into a captive to improve risk management and leverage nancial benets. Corporations recognise that employee benet risks can be signicant and account for a sizeable chunk of their operating costs. Based on market experience, Zurich estimates that employee benets premiums comprise between 20-50% of the overall insurance expenditure of most corporations, with variations due to either geographic location or industry sector. Employee benets can easily reach 10% of the total payroll cost and an even higher proportion if you add funding for retirement. Zurich believes that out of a few thousand nonlife international captive programmes currently in operation, only about 50-60 include truly international employee benets portfolios. The majority of these have been established in the past few years, so the rate of acceleration has been rapid. Zurich expects this trend for integration to continue. Some experts predict that employee benets will drive captive growth over the next ve years. (for the full story, go to www.captivereview.com). A new landscape Captives change the risk landscape in the way life cover is handled as businesses shift away from the traditional approach, where local policies are held by insurers who keep more or less their entire

DR PAUL WHRMANN
has over 20 years experience working in international corporate business at Zurich. With a PhD in economics, he is the author of a large number of specialist publications on the development and structure of alternative risk nancing solutions.

risks on their own balance sheets. By pooling local policies in a captive programme and adding in a reinsurance level, the management control moves to the captive. Co-ordinating coverage so that it is aligned with central principles, but consistent with local benchmarks everywhere a corporation operates, is a signicant business and administrative advantage. There are well-documented nancial benets of captives gaining access to cash-ow management, investment returns and cost savings available to the corporation. There is also the benet of Solvency II diversication requirements and freeing up capital to invest elsewhere in the business. Bringing employee benets into a captive introduces other non-nancial benets as well. In particular, corporations are able to build a valuable global database that is helpful in future decision making based on past experience, so employee benets can be customised to meet specic requirements and goals. Captives can access a higher level of information than available in the traditional insurance market. With this information they can develop tailor-made risk management plans. For example, if employees in a particular country face certain health issues then local health programmes can be amended to improve the quality of the risk. All for one For integration of life and non-life to be successful, levels of trust and collaboration need to be strong between risk managers, human resources and nance departments along with external part-

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disrupt your supply chain is less predictable. To avoid surprises, risk managers can agree to cross class aggregates to protect all the lines of business contained in their captive programme against unexpectedly large claims. Captives can also limit potential losses by capping maximum losses with a stop-loss agreement. Double protection can be sought with an insurer who offers both of these. PAOLO MARINI Integrating life cover in a captive gives corpobegan his career in rations another signicant advantage in having group insurance in far greater control over premiums. However, the 1990 at the world focus should not be entirely on price. Cover such headquarters of the Generali group in as disability and death are much longer-term comTrieste, Italy. In January pared with non-life insurance and the priority of 2011, he joined Zurich an employee benets programme isnt just focused as global head of on how much it costs in one particular year. customer management for corporate life and Introducing life into a captive adds new chalpensions. lenges, particularly in terms of having a deep understanding of local tax, social security, labour laws and other local regulatory aspects. Mismanaging employee benets, whether it is a companywide medical scheme or a small bespoke scheme for a few key senior employees, can have far reaching consequences on brand, reputation or employee relations. In the insurance market, the captive model for non-life is well developed on a global scale. ners, such as the captives administrator. Therefore there may be a danger when employee Typically, human resources will design life benets are added if tight control products depending on the decreases after the initial implediverse requirements of its global mentation. If a captive isnt used to workforce and the purpose of handling the human component it the products, for example, as an CASE STUDY: is important to maintain focus and incentive to attract and retain key HR AND RM BRING leverage the expertise of insurers personnel. They also benchmark SYNERGY TO SYNGENTA and external consultants to ensure against industry best practice life elements are well managed and and tailor products to meet local Syngenta employs more than 26,000 peocomply with local laws. regulations. ple in 90 countries and says strong collaboThe nance department can ration between human resources and risk Pensions next concentrate on managing the management functions when incorporating As employee benets become investment risk exposures from employee benet programmes into a capaccepted in the captive market, life and non-life elements, while tive is a necessity. The companys captive was set up 10 years Zurich expects attention to focus on the risk manager has to know ago and from the start employee benet pension nancing and how to take how to squeeze the best out of a programmes were reinsured to the captive. advantage of opportunities available deal, but do so within the context Today, Syngentas global insurance set-up if these are added to the mix. of what is best for the employees provides coverage for 90% of its employees The next stage in the evolution of who participate in the benets in 52 countries. Out of $11m in employee captives will see the introduction of programme. benets premiums, $9m is reinsured to the more complex risks linked to retirecaptive and $2m is pooled. ment. This will give corporations Manage your risks When bringing employee benets into the greater risk and asset management The risks in employee benets captive we realised it was essential to build control to make allocation decisions, are usually easier to predict than and maintain close connections within our human resources department across the globe, avoid trapped assets issues, and ennon-life ones, such as property said Matthias Helmbold, global benets manhance the security of their pensions and casualty. By using data on ager and HR M&A at Syngenta. thanks to the nancial strength of demographics, mortality, morbidThe insurance data we generate is shared the insurer behind the captive. Cenity and a sizeable sample basis it within human resources to identify trends on tralised pension risk governance and is easier to predict future events employee benets. Claims data is very imdecision making as well as econoand tailor products to match portant for human resources to use at a local mies of scale should bring further these. In contrast, knowing when level, for example, on medical claims to ensure cost savings and efciency benets the next natural catastrophe a programme isnt running on a loss basis. to the table. might damage your buildings or

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