Presentation on Employee Benefit during FERMA Forum 2015

1. Employee Benefits
Panel, October 6, 2015
PROFESSION – INNOVATION – DIVERSITY

2. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Moderator and Speakers
 Sabrina Hartusch: Global Head of Insurance, Triumph,
Switzerland; president of SIRM
 Paolo Marini: Global Head Customer Management, Corporate Life
& Pensions, Zurich, Switzerland
 Janine Heijckers: Aon Global Benefits Practice Director EMEA,
The Netherlands
 Holger Kraus: Insurance Risk Financing and Strategy, Siemens,
Germany
2

3. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Multinationals’ Risk Benefits Spend
 Estimated $10b annual international risk benefits financing
*Source: Employer Costs for Employee Compensation,
U.S. Bureau of Labor Statics, March 2012
3
20 – 40%
of overall
insurance costs
10% of payroll*

4. Paolo Marini
PROFESSION – INNOVATION – DIVERSITY

5. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Today vs Tomorrow
 Increasing Complexity
 Fewer HR Resources
 More Centralized Financing
 Rise of the CRO
 Protection Gap
 Simplify Administration
 Reduce Global Costs
 Access Accurate Data Easily
 Ensure Compliance Certainty
 Duty of Care
5FORUM 2015
Venice, Italy 4-7 October

6. Janine Heijckers
PROFESSION – INNOVATION – DIVERSITY

7. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
7
1. The trend of centralisation is ahead of operational reality
2. “Centres of excellence” more like “centres of mediocrity”
Benefit administration is a major drain on strategic resources3.
4. Lack of benefits plan data is a barrier to strategic priorities
5. Financing of benefits is moving beyond multinational pooling
Aon Global Benefits Study 2015
Key Conclusions
6. Clear opportunities for improved eficiencies and to drive savings

8. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Financing strategies
Localised
Insurance
contracts
Captive
reinsurance
Multinational
Pooling
Partnership
Arrangement
Global Risk
Policies
Life Disability Medical Accident
SomeNone Most

9. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Benefit Strategy Development
9
PHASE 1
Inventory
Broad global
benefits philosophy
Corporate policy
metrics as context
Data and
information
collection
PHASE 2
Assessment
Design risks
& opportunities
Financial risks
& opportunities
Operational risks
& opportunities
PHASE 3
Strategy
Current
opportunities
and risks
Ongoing
opportunities
and risks
PHASE 4
Governance
Prioritization and
timeframe for
corrective actions
Global benefits
policies to improve
alignment and avoid
future risks
Corporate
committee
and responsibility
Regional
committees & COE
and responsibility
Local mgmt. and
HR/Fin responsibility
PHASE 5
Optimisation
Maximise value
of benefit
programmes
Finance benefits
efficiently
and minimise
financial risks
Consistent employee
experience &
operational efficiency

10. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
•About Aon
•Aon plc (NYSE:AON) is a leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through
its more than 66,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through
industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker, best insurance intermediary, reinsurance intermediary,
captives manager and best employee benefits consulting firm by multiple industry sources. Visit www.aon.com for more information on Aon and www.aon.com/manchesterunited to
learn about Aon’s global partnership and shirt sponsorship with Manchester United.
•© Aon plc 2015. All rights reserved.
•The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity.
Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date
it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the
particular situation.
•www.aon.com
•Risk. Reinsurance. Human Resources

11. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Financing Strategies - Continuum
Local
self-
insurance
Local insured
policies
International
policies
Multinational
pooling
Enhanced
pooling
strategies
Captive
re-insurance
of employee
benefits
Global
partnership
arrangement
Global risk
policies
Local profit
sharing
Premium cost
reduction
Pooling
international
dividend
Advanced
international
dividend
Global
negotiated
local premium
reduction
Global
premium
payment
Captive
influences
local premium
rates
SomeNone Most
Life Disability Medical / Healthcare Accident

12. Holger Kraus
PROFESSION – INNOVATION – DIVERSITY

13. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Global Management of EB
13
 Why:
 Significant expense position
 Limited transparency
 Untapped financial efficiencies
 What:
 Fronted EB Captive Program
 Use of existing reinsurance captive company
 How:
 HR: benefit design
 Insurance Risk Management: benefit financing

14. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Challenges
14
 Complex Issue with a number of internal and external
stakeholders
 Integration / management of different stakeholder
perspectives is key – don´t underestimate cultural
aspects and implications of changes in roles
 Finance
 Insurance
 HR
 Procurement
 Insurers
 Brokers
 Consultants
 ...

15. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Critical Success Factors
15
 Integration of perspectives and trustbuilding
 Communication is key
 Approach (mandatory / freedom to join) needs to fit
corporate culture)
 Acceptance, that best of both worlds (optimal solution
from local as well as central perspective is not
achievable)

16. Thank you!

17. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
APPENDIX

18. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Employee Benefits Today
COORDINATED
 3,000 Pools for
approximately 1,200
Multinationals
 70 global benefits captive
programs
 $2.5b risk premium annually
18
UNCOORDINATED
 5,000 Multinationals don’t
coordinate global benefits
provision and costs
 $7.5b yearly risk premium
outside any coordinated
programs

19. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Rise in number, size and complexity
of multinational companies
19
16
20
24
28
32
36
1980 1990 2000 2010 2020
HQ Companies Subsidiaries
1,984 2,146 2,394
69,424
42,275
71,333
Europe N America ROW
6,524 HQ
Companies
140m+
Employees
183,032
Subsidiaries
Source: IMF, Global Trade Alert Source: Aon research for Zurich, February 2015
Companies have grown internationally with the
advancement of global trade
World exports
% of GDP
Multinationals are growing in number and
expanding their presence via subsidiaries
Multinational corporations and their subsidiaries
HQ Companies with 5,000+ employees and USD5m+ turnover

20. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
From Domestic Policies to ASO
20
Financial Improvement Scale
Modest Significant High
1 3 4 52 6
No
multinational
pools
Traditional
multinational
pools
Managed pools
(negotiated
improvements)
Pools reinsured
to captive
 Premiums held
by captive
 Reserves held
by captive
Administrative
Services Only no
local reserves
Head Office Involvement Scale
None Modest Significant High

21. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Employee Benefits Captives in 2014*
21
Estimated Number of
Employee Benefit Captives in 2014
Estimated Premiums Paid to Employee
Benefit Captives in 2014 ($ billions)

22. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Value proposition for financing benefits
through captives
22
Cost
Savings
Cash Flow
CoverageCapacity
Control

23. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Captive considerations
23
Financing Fronting fees /
Risk charges
Administration
fees
Operational fees
• Securitization
• Reinsurance
trust
• Letters of credit
• Exposure
• Risks retained by
fronting carrier
• Amount of
additional
protection
required (beyond
expected costs)
• Cost to “rent
paper”
• Risk charges for
retained risks
• Stop loss
• Other expenses
• Same services
and costs as
traditional
funding
arrangements
• Premium taxes
• Captive
management
fees
• Feasibility study
• Legal fees
• Independent
fiduciary fees

24. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Solvency II — for EU based captives
24
Insurance risk
Market risk
Credit risk
Liquidity risk
Operational risk
SOLVENCY II
Embedding Solvency II in your business
Pillar 1
Quantitative requirements
Reserving
Regulations on minimum
capital requirements
Investment
Pillar 2
Supervisor Review
Quantitative requirements
Regulations on financial
services supervision
(Capabilities and powers of
regulators, areas of
activity)
Pillar 3
Market discipline
Transparency
Disclosure
requirements
Competition related
elements
Implementation Control Disclosure
Capital Requirements Governance &
Risk Management
Disclosure &
Transparency

25. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Reinsuring US Employee Benefits
25
Internal Revenue Service (IRS) Department of labor (ERISA)
• Parent company can take a tax
deduction equal to all the premium
paid to the…
• …captive if at least 30% is generated
from unrelated business
• EB plan are considered unrelated to
the partner company
• EB plans are prohibited from being
reinsured b a captive (unless certain
requirements are met)
• DOL concerned with solvency and
potential for self-dealing
• Prohibited Transaction Exemption
required
• Benefit improvement must be
implemented
• Captive must be US domiciled

26. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Implementation process
26
1. Evaluation 2. Selection 3. Implementation 4. Monitoring
• Obtain risk
management and
HR buy-in
• Data mine your
global EB spending
• Pooling networks
• Internal databases
• Feasibility study
• Savings
• Goals
• Costs & bench-
marking
• Captive structure/
domicile
• Identify your
preferred providers
• Select contracts to
transition
• Years 1,2,3
• Determine
underwriting
philosophy
• Commence DOL
application (US only)
• Obtain internal
approvals/buy in
• Legal, treasury, tax,
purchasing
• Communications
• Regional
• Business
units
• Governance
• Reinsurance
agreements
• Collateral
• Accounting
treatments
• SLA’s
• Quarterly
accounting
• Claim
management/
monitoring
• Exposure analysis
and reporting
• Plan design
control

27. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
2016 Captive Implementation Timing
27
2016
onwards
Q3 2015Q2 2015Q1 2015 Q4 2015WORKSTREAM
Data
collection
Implement captive strategy if appropriate
(e.g. setup, licensing)
1. Evaluation &
captive
feasibility
Feasibility
analysis
2. Network
selection/
negotiation
Agree/sign
agreements and
treaties
Negotiate
with
networks
Governance framework
created/adjusted and agreed to
reflect strategy and
responsibilities
3. Governance
framework
Communications drafted and
rolled out internally and
through broking network
4. Communication
Implement in line
with strategy (timing
depends on local
renewals)
5. Local
Implementation

28. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Zurich International Programs for
Employees
28
Reducing the complexity and effort of negotiating and
implementing policies one-by-one in each country
Fulfilling the duty of care to employees globally
Ensuring that the right cover is in place
Attracting and retaining the best talent globally
Accessing reliable data on existing employee
benefit programs
Gaining and maintaining understanding, transparency
and control of employee risk programs and their costs
Consolidating relationships with insurers
Standardizing and increasing the efficiency
of employee risk programs
Ensuring that insurance is aligned with local regulatory requirements

29. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Income Protection Gap
 As important as retirement / longevity gap, and linked to it
 Compounded by effects of financial crisis
 Survey of major markets worldwide
 Risks generally underestimated
 Shift in reasons for loss of income
 Diverging perceptions of public sector’s role
 Uneven trust in ability of State to honor commitments
 Engagement of employers and invidudals required
29

30. BRUSSELS, 20-21 October
www.ferma.eu
FORUM 2015
Venice, Italy 4-7 October
Benefit Exchanges
 Recently implemented in US
 At “concept stage” elsewhere
 Potential alternative to managed global risk financing
 Will the concept gain traction beyond healthcare?
 Will it be exported?
 Is the UK the most likely follower?
30