Using an Alternative Risk Solution for International Employee Benefits Moderator: Clayton Price Panelists: Karen Markowski...
Sampling of  Captives that are Public about their approval to write US Benefit Plans since Columbia Energy’s in 2000  <ul>...
3M Global Employee benefits – Case Study Human Resources/ Finance – Pooling and Reinsurance to a Captive
3M’s Brands
3M  Company <ul><li>Established in 1902 </li></ul><ul><li>2006 Annual Revenue of $22.9 Billion </li></ul><ul><li>More than...
3M Insurance Department <ul><li>Global responsibility for property and casualty programs </li></ul><ul><li>Report into Tre...
Global Benefits Department <ul><li>Coordinating the global employee benefit needs for 3M </li></ul><ul><li>Responsible for...
Benefit insurances covered under the global program <ul><li>Group Life Insurance </li></ul><ul><ul><li>Employer Funded - B...
Overview of Historic Arrangements <ul><li>Multinational Pooling History </li></ul><ul><ul><li>Three pooling providers – co...
Employee Benefits Project Progression No Standard Process Phase I - BB Project Define Active Pool Process,  Optimize Contr...
<ul><li>Cost savings to 3M due to reduced reliance on insurance companies to insure employee benefits risk </li></ul><ul><...
Project Map <ul><li>Six Sigma Elements: </li></ul><ul><li>One time event </li></ul><ul><li>Lean </li></ul><ul><li>Re-desig...
Domicile Selection <ul><li>Evaluated based on Taxes, Regulations, Infrastructure, Perception </li></ul><ul><li>Created det...
Benchmark Savings - Prem. Discount <ul><li>Professional Trade Journals </li></ul><ul><ul><li>Multinational company saved 1...
Design & Implementation <ul><li>Project Management Documents </li></ul><ul><ul><li>Implementation Plan & Open Items </li><...
Cross Functional Map <ul><li>Documented process steps performed by various groups </li></ul><ul><li>Helped define language...
RACI – Design the Process <ul><li>P&C process owner defined major process steps </li></ul><ul><li>Documented which steps w...
Pilot – Process Validation <ul><li>Mock data: 12 countries, 3 plans </li></ul><ul><li>5 quarters (one annual cycle) </li><...
Bermuda Regulatory Approval <ul><li>Application included:  </li></ul><ul><ul><li>Business narrative describing case for cr...
Control Plan <ul><li>12 control steps </li></ul><ul><li>links to sample reports </li></ul>Control the Process
Final Capability 3M OUS Subsidiary (70) Premium Payment * Assets and risk of loss is retained. Fronting Insurer (2) Premiu...
Project Benefits <ul><li>Process established to add more countries </li></ul><ul><li>Improved timeliness of claims data to...
Bridge to Entitlement <ul><li>Expansion of process to include more countries (expected in 2008) </li></ul><ul><li>Possible...
Chevron’s Brands Our Family of Brands
Chevron Company Information <ul><li>Established 1879  Pacific Coast Oil Co.  </li></ul><ul><li>2006 Annual Revenue  $205 B...
Chevron’s Captives <ul><li>Ironhorse incorporated in 2005 </li></ul><ul><li>Heddington  incorporated in 1970  </li></ul><u...
<ul><li>Advantages:  </li></ul><ul><li>The Bermuda Trust managed by a Trustee Company has enabled Chevron to combine vario...
Chevron’s Alternative Solution for their Employee Benefits program <ul><li>Bermuda was chosen because: </li></ul><ul><li>B...
Chevron’s  Alternative Solution for their  International Employee Benefits program <ul><li>Concerns </li></ul><ul><li>Foll...
Overview of the Trust  <ul><li>Types of cover Pension Retirement Assistance,  Savings & Health </li></ul><ul><li># of empl...
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  1. 1. Using an Alternative Risk Solution for International Employee Benefits Moderator: Clayton Price Panelists: Karen Markowski Gary Pitman Brad Viessman
  2. 2. Sampling of Captives that are Public about their approval to write US Benefit Plans since Columbia Energy’s in 2000 <ul><li>ADM </li></ul><ul><li>AGL </li></ul><ul><li>Alcoa </li></ul><ul><li>Alcon Labs </li></ul><ul><li>Astra Zeneca </li></ul><ul><li>Columbia Energy </li></ul><ul><li>Heinz </li></ul><ul><li>International Services </li></ul><ul><li>International Paper </li></ul><ul><li>SCA </li></ul><ul><li>Sun Microsystems </li></ul><ul><li>Wells Fargo </li></ul>Life, Pooling Life Life Pooling Life, LTD Multinational Pooling, Life, LTD LTD Life Multinational Pooling Life, LTD Life, LTD, Pooling Life Life, LTD
  3. 3. 3M Global Employee benefits – Case Study Human Resources/ Finance – Pooling and Reinsurance to a Captive
  4. 4. 3M’s Brands
  5. 5. 3M Company <ul><li>Established in 1902 </li></ul><ul><li>2006 Annual Revenue of $22.9 Billion </li></ul><ul><li>More than 60% of sales outside of US </li></ul><ul><li>Over 73,000 employees, more than 40,000 are international employees </li></ul><ul><li>Companies in more than 60 countries, sell in more than 200 countries </li></ul>
  6. 6. 3M Insurance Department <ul><li>Global responsibility for property and casualty programs </li></ul><ul><li>Report into Treasury/Finance </li></ul><ul><li>Partner with three global brokers </li></ul><ul><li>Captive Insurance Companies: </li></ul><ul><li>Seaside: Bermuda captive – incorporated in 1972 </li></ul><ul><ul><li>International Casualty </li></ul></ul><ul><ul><li>US Workers Compensation </li></ul></ul><ul><ul><li>Two Harbors: S. Carolina captive – incorporated in 2007 </li></ul></ul><ul><ul><li>Global Property </li></ul></ul>
  7. 7. Global Benefits Department <ul><li>Coordinating the global employee benefit needs for 3M </li></ul><ul><li>Responsible for the design, review and approval of employee benefit plans </li></ul><ul><ul><li>North America </li></ul></ul><ul><ul><ul><li>2 countries, 36,200 employees </li></ul></ul></ul><ul><ul><li>Europe/Middle East/Africa </li></ul></ul><ul><ul><ul><li>35 countries, 17,200 employees </li></ul></ul></ul><ul><ul><li>Asia Pacific </li></ul></ul><ul><ul><ul><li>15 countries, 12,500 employees </li></ul></ul></ul><ul><ul><li>Latin America </li></ul></ul><ul><ul><ul><li>18 countries, 6,500 employees </li></ul></ul></ul>
  8. 8. Benefit insurances covered under the global program <ul><li>Group Life Insurance </li></ul><ul><ul><li>Employer Funded - Basic </li></ul></ul><ul><ul><li>Employee Funded – Supplemental </li></ul></ul><ul><li>Disability </li></ul><ul><ul><li>Short-term </li></ul></ul><ul><ul><li>Long-term </li></ul></ul><ul><ul><li>Permanent & Total (PTD) </li></ul></ul><ul><li>Medical </li></ul><ul><ul><li>Managed Care </li></ul></ul><ul><ul><li>Major Medical/Hospitalization </li></ul></ul><ul><ul><li>Dental/Vision </li></ul></ul><ul><li>Accidental Death & Dismemberment (AD&D) </li></ul>
  9. 9. Overview of Historic Arrangements <ul><li>Multinational Pooling History </li></ul><ul><ul><li>Three pooling providers – covering 40 countries and $21 million in premiums </li></ul></ul><ul><ul><ul><li>John Hancock (IGP) – started 1974 </li></ul></ul></ul><ul><ul><ul><li>AIG – started 1974 </li></ul></ul></ul><ul><ul><ul><li>Swiss Life – started 1977 </li></ul></ul></ul><ul><li>Issues/concerns </li></ul><ul><ul><li>No central knowledge base </li></ul></ul><ul><ul><li>Lack of control </li></ul></ul><ul><ul><li>Opportunity for cost savings </li></ul></ul>
  10. 10. Employee Benefits Project Progression No Standard Process Phase I - BB Project Define Active Pool Process, Optimize Contract Renewal, and Pooled Arrangements Captive Ins. – BB Project Reduce insurance expenses US Benefit Inclusion Time-Line Process Improvement Entitlement Process Phase II - GB Project Define RFP and Reduce Number of Global Providers (2) 2004 2005 2006 2007
  11. 11. <ul><li>Cost savings to 3M due to reduced reliance on insurance companies to insure employee benefits risk </li></ul><ul><ul><li>Projected range of 5-15% (validated by peer companies)* </li></ul></ul><ul><li>3M retains cash and generates investment returns (versus insurance company using money during the year) </li></ul><ul><li>Improved timeliness of claims data to better manage benefit programs </li></ul><ul><li>Centralized expertise for managing employee benefit insurance </li></ul><ul><ul><li>Reduced subsidiary administration time for annual bidding/analysis/contract renewal process </li></ul></ul><ul><li>* Notes : </li></ul><ul><li>Savings may vary by policy type, local insurance market conditions, broker usage, and claims experience. </li></ul><ul><li>Expenses and Risk charges will be reduced but not eliminated as AIG/Generali will be administering policies and claims activities on a local level. </li></ul>Why Change? Advantages of New Approach
  12. 12. Project Map <ul><li>Six Sigma Elements: </li></ul><ul><li>One time event </li></ul><ul><li>Lean </li></ul><ul><li>Re-design </li></ul><ul><li>Design </li></ul>Select Captive Domicile Conduct Pilot Gain BMA Approval Control the Process Perform Financial Analysis Create Implementation Plan
  13. 13. Domicile Selection <ul><li>Evaluated based on Taxes, Regulations, Infrastructure, Perception </li></ul><ul><li>Created detailed descriptions of criteria </li></ul><ul><li>Sent to 3 External Subject Matter Experts (SMEs) </li></ul>
  14. 14. Benchmark Savings - Prem. Discount <ul><li>Professional Trade Journals </li></ul><ul><ul><li>Multinational company saved 15% </li></ul></ul><ul><li>3rd Party Consultants </li></ul><ul><ul><li>Watson Wyatt estimated 10-20% </li></ul></ul><ul><li>Industry Contacts </li></ul><ul><ul><li>3 peer multinational companies experienced savings of 20% - 25% </li></ul></ul>Financial Analysis Takeaway: 3M’s savings estimates are reasonable
  15. 15. Design & Implementation <ul><li>Project Management Documents </li></ul><ul><ul><li>Implementation Plan & Open Items </li></ul></ul><ul><ul><li>Timelines </li></ul></ul><ul><li>Design Process </li></ul><ul><ul><li>Identify major responsibilities </li></ul></ul><ul><ul><li>Process Maps </li></ul></ul><ul><ul><li>Examine potential failures </li></ul></ul><ul><ul><li>Pilot – Execute mock process </li></ul></ul>Implementation Plan
  16. 16. Cross Functional Map <ul><li>Documented process steps performed by various groups </li></ul><ul><li>Helped define language for discussion purposes </li></ul><ul><li>Part of control plan </li></ul>Implementation Plan
  17. 17. RACI – Design the Process <ul><li>P&C process owner defined major process steps </li></ul><ul><li>Documented which steps would be added with EB program </li></ul><ul><li>Updated RACI at end of project </li></ul>Implementation Plan
  18. 18. Pilot – Process Validation <ul><li>Mock data: 12 countries, 3 plans </li></ul><ul><li>5 quarters (one annual cycle) </li></ul><ul><li>Common failure modes </li></ul><ul><ul><li>Currency fluctuations </li></ul></ul><ul><ul><li>Delayed premium payments </li></ul></ul><ul><ul><li>Taxes, Reserves, Fees </li></ul></ul>Conduct Pilot 3M provides narrative and data to Fronting Carriers Fronting Carrier delivers reports Captive mgmt. creates financials 3M reviews for compliance
  19. 19. Bermuda Regulatory Approval <ul><li>Application included: </li></ul><ul><ul><li>Business narrative describing case for creating captive </li></ul></ul><ul><ul><li>Scope of new business; types of risk, countries </li></ul></ul><ul><ul><li>5 year pro-forma financials based on historical experience </li></ul></ul><ul><ul><li>Reserve and reinsurance information </li></ul></ul><ul><ul><li>Appointment of an accredited Loss Reserve Specialist (LRS) </li></ul></ul><ul><ul><li>Authorization from Seaside Board of Directors </li></ul></ul><ul><li>Approval granted November 24 th , 2006 </li></ul>Gain BMA Approval
  20. 20. Control Plan <ul><li>12 control steps </li></ul><ul><li>links to sample reports </li></ul>Control the Process
  21. 21. Final Capability 3M OUS Subsidiary (70) Premium Payment * Assets and risk of loss is retained. Fronting Insurer (2) Premium Ceded to Captive 3M-Owned Captive *
  22. 22. Project Benefits <ul><li>Process established to add more countries </li></ul><ul><li>Improved timeliness of claims data to better manage benefit programs </li></ul><ul><li>Centralized expertise and purchasing of employee benefit insurance </li></ul><ul><ul><li>Reduced subsidiary administration time for annual bidding/analysis/contract renewal process </li></ul></ul><ul><ul><li>Sourcing leverage </li></ul></ul><ul><li>Electronic mapping of financial data </li></ul>
  23. 23. Bridge to Entitlement <ul><li>Expansion of process to include more countries (expected in 2008) </li></ul><ul><li>Possible addition of US Benefits </li></ul><ul><ul><li>Requires Dept. of Labor approval </li></ul></ul><ul><ul><li>Potential for preferential tax treatment </li></ul></ul><ul><ul><li>Few companies have implemented </li></ul></ul>
  24. 24. Chevron’s Brands Our Family of Brands
  25. 25. Chevron Company Information <ul><li>Established 1879 Pacific Coast Oil Co. </li></ul><ul><li>2006 Annual Revenue $205 Billion </li></ul><ul><li>Employees 26,488 (US) 29,394 (ROW) </li></ul><ul><li>Countries 180 </li></ul><ul><li>Recent Acquisitions Unocal Texaco (includes Getty) Gulf </li></ul>
  26. 26. Chevron’s Captives <ul><li>Ironhorse incorporated in 2005 </li></ul><ul><li>Heddington incorporated in 1970 </li></ul><ul><li>Puritan incorporated in 1986 </li></ul><ul><li>Traders incorporated in 1977 </li></ul><ul><li>Insco incorporated in 1971 </li></ul><ul><li>Global Property </li></ul><ul><li>Global Casualty </li></ul><ul><li>Operators Extra Expense </li></ul><ul><li>Global Aviation </li></ul><ul><li>TRIA & Workers Compensation </li></ul><ul><li>Run-off Liability </li></ul>
  27. 27. <ul><li>Advantages: </li></ul><ul><li>The Bermuda Trust managed by a Trustee Company has enabled Chevron to combine various different International Benefit Plans under an umbrella trust and it has worked well. </li></ul><ul><li>International employees having no suitable home or host country benefit packages can be enrolled in our Global Benefit Plans. This enables them to move from job to job without having to change plans. </li></ul>Chevron’s Alternative Solution for their Employee Benefits program
  28. 28. Chevron’s Alternative Solution for their Employee Benefits program <ul><li>Bermuda was chosen because: </li></ul><ul><li>Bermuda is a key International Financial Centre </li></ul><ul><li>Bermuda has a strong reputation in plan management and administration. </li></ul><ul><li>Bermuda is an ideal location for pensions of globally mobile employees </li></ul><ul><li>Bermuda’s regulation is comparatively favorable </li></ul><ul><li>Confidentiality in Bermuda is assured: There is no compulsory registration or any filings for international plans including Statement of Accounts, Balance Sheet, Actuarial Report </li></ul>
  29. 29. Chevron’s Alternative Solution for their International Employee Benefits program <ul><li>Concerns </li></ul><ul><li>Following Chevron’s merger activity the Company has 7 captives and the priority was to rationalize these captives before considering utilizing them for HR Benefit Plans </li></ul>
  30. 30. Overview of the Trust <ul><li>Types of cover Pension Retirement Assistance, Savings & Health </li></ul><ul><li># of employees covered 4000 </li></ul><ul><li># of countries 25 </li></ul><ul><li># of assets in Trust: $90 million </li></ul><ul><li>Future Plans? Continue to utilize the Bermuda Umbrella Trust approach for amalgamating all Global Benefit Plans </li></ul><ul><ul><ul><ul><ul><li>Review utilizing captives to incorporate International Employee Benefit Plans once the Captives are rationalized </li></ul></ul></ul></ul></ul>

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