Employee Benefits Panel, October 6, 2015 PROFESSION INNOVATION DIVERSITY

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

2 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 Multinationals Risk Benefits Spend Estimated $10b annual international risk benefits financing 20 40% of overall insurance costs 10% of payroll* *Source: Employer Costs for Employee Compensation, U.S. Bureau of Labor Statics, March

4 Paolo Marini PROFESSION INNOVATION DIVERSITY

5 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 5

6 Janine Heijckers PROFESSION INNOVATION DIVERSITY

7 Aon Global Benefits Study 2015 Key Conclusions 1. The trend of centralisation is ahead of operational reality 2. Centres of excellence more like centres of mediocrity 3. Benefit administration is a major drain on strategic resources 4. Lack of benefits plan data is a barrier to strategic priorities 5. Financing of benefits is moving beyond multinational pooling 6. Clear opportunities for improved eficiencies and to drive savings 7

8 Financing strategies None Some Most Localised Insurance contracts Multinational Pooling Partnership Arrangement Global Risk Policies Captive reinsurance Life Disability Medical Accident

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

10 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 for more information on Aon and to learn about Aon s global partnership and shirt sponsorship with Manchester United. Aon plc 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. Risk. FORUM Reinsurance Human Resources

11 Financing Strategies - Continuum None Some Most Local selfinsurance Local insured policies International policies Multinational pooling Enhanced pooling strategies Global partnership arrangement Global risk policies Captive re-insurance of employee benefits 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 Life Disability Medical / Healthcare Accident

12 Holger Kraus PROFESSION INNOVATION DIVERSITY

13 Global Management of EB 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 13

14 Challenges 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... 14

15 Critical Success Factors 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) 15

16 Thank you!

17 APPENDIX

18 Employee Benefits Today COORDINATED 3,000 Pools for approximately 1,200 Multinationals 70 global benefits captive programs $2.5b risk premium annually UNCOORDINATED 5,000 Multinationals don t coordinate global benefits provision and costs $7.5b yearly risk premium outside any coordinated programs 18

19 Rise in number, size and complexity of multinational companies 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 36 6,524 HQ Companies 183,032 Subsidiaries 140m+ Employees 32 HQ Companies Subsidiaries 69,424 71, , ,984 2,146 2,394 Europe N America ROW Source: IMF, Global Trade Alert Source: Aon research for Zurich, February

20 From Domestic Policies to ASO Financial Improvement Scale Modest Significant High 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 20

21 Employee Benefits Captives in 2014* Estimated Number of Employee Benefit Captives in 2014 Estimated Premiums Paid to Employee Benefit Captives in 2014 ($ billions) 21

22 Value proposition for financing benefits through captives Cost Savings Control Cash Flow Capacity Coverage 22

23 Captive considerations 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 23

24 Solvency II for EU based captives SOLVENCY II Embedding Solvency II in your business Insurance risk Pillar 1 Quantitative requirements Pillar 2 Supervisor Review Pillar 3 Market discipline Market risk Reserving Quantitative requirements Transparency Credit risk Regulations on minimum capital requirements Regulations on financial services supervision Disclosure requirements Liquidity risk Operational risk Investment (Capabilities and powers of regulators, areas of activity) Competition related elements Implementation Control Disclosure Capital Requirements Governance & Risk Management Disclosure & Transparency 24

25 Reinsuring US Employee Benefits Internal Revenue Service (IRS) 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 Department of labor (ERISA) 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 25

26 Implementation process 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 & benchmarking 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 26

27 2016 Captive Implementation Timing WORKSTREAM Q Q Q Q onwards 1. Evaluation & captive feasibility Data collection Feasibility analysis Implement captive strategy if appropriate (e.g. setup, licensing) 2. Network selection/ negotiation Negotiate with networks Agree/sign agreements and treaties 3. Governance framework Governance framework created/adjusted and agreed to reflect strategy and responsibilities 4. Communication 5. Local Implementation Communications drafted and rolled out internally and through broking network Implement in line with strategy (timing depends on local renewals) 27

28 Zurich International Programs for Employees 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 28

29 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 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

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