Multinational Pooling

Multinational pooling allows multinational companies to benefit from favourable insured claims experience on a world-wide basis.

Around the world there exist various methods of financing employee benefits. Many multinational companies choose insurance as a method of financing employee benefit plans. A multinational pooling account is essentially a second stage accounting of insured employee benefit plans at the international level. Such a process introduces the application of administration and risk charge retentions which are based on an accurate assessment of costs incurred in insuring a given group of employee benefit risks internationally. This approach means that ingoing premium levels, even if set by tariff, do not necessarily represent the cost of a given plan. In many cases the real or net cost will be much less, depending on the level of insured claims experience.

A multinational pool brings together insured benefit plans (retirement, death, disability, medical, accident) which have been set up locally for two or more countries. Premiums are paid by subsidiaries on a purely local basis, and claims settled by Insurope’s local insurers on a purely local basis. At the end of each experience year the local insurers involved in a given multinational pooling account will submit the results of the local plans to Insurope showing amounts held, received and paid in respect of those plans.

A multinational account is then drawn up showing premiums paid minus claims, minus the insurer’s risk retention and administration charge. This account also takes into consideration other items such as reserves, interest, non-rated premiums, local taxes, local dividends and commissions.

If the experience of the insured group is favourable, then there will be a surplus in the multinational account, payable to the client as a multinational dividend. Estimates by advisors on multinational pooling suggest that over a period of years an 8% to 15% reduction of local premium costs can be achieved. In years of good experience, dividend percentages can be substantial, even reaching 80% to 90% of risk premiums paid.

The minimum requirement for a multinational pool is 200 units insured under poolable plans with the Network in at least two countries. Insurope counts a life insured for risk benefits as one unit and a life covered for insured benefits with a savings element as two units. Thus 100 lives covered for life insurance and pensions in two or more countries will make the parent corporation eligible for a multinational pool.

Payment of the international dividend depends upon the number of units covered and the pooling system elected, as described later on. In general, total payout of annual international dividend is made for 500 covered lives on a stop-loss system or 1,000 covered units on a loss-carry-forward system. If, however, the number of units on a carry forward system is less than 1,000 the payment of international surplus is spread over a period of two to three years.

Insurope pools life insurance, short-term and long-term disability cover, accidental death and medical benefits and retirement pensions where appropriate in all countries, including Eastern Europe. For coverages which do not form part of a pooling arrangement, Insurope offers "Program Reporting", that is information on local benefit plans, including non-insured retirement plans and funds, premiums and claims for risk and medical plans and details on other non-pooled arrangements.

Insurope does not normally pool individual insurances, voluntary risk plans, separable accident benefits and plans where local dividend is incompatible with multinational pooling (e.g. local experience rating).

Multinational Pooling with Insurope gives the added advantage of network free cover. This applies even for groups which might normally only qualify for lower levels of free cover on a local basis due to a low number of lives insured.

Free cover limits (2011) are the local currency equivalents of the following amounts :

• For groups fewer than 5,000 lives : € 850,000 - per life for death benefits and € 65,000 - per year for disability pensions.

• For groups over 5,000, the limits are € 1,150,000 - and € 85,000 - per year respectively.

• For smaller groups participating in Insurope's multi-employer system 'Multipool', the limits are € 700,000 and € 45,000 - per year respectively.

Free cover limit is the level of coverage for which no medical evidence is required and it is applied if local conditions are not more generous. The limits stated above are those applicable in the current year. Insurope adjusts these limits each year to account for inflation and exchange rate fluctuation.

Normally, the free cover limits determined by Insurope also constitute the Network's "Rating Limits", that is the amounts of risk for each employee which are subject to multinational pooling.

Amounts exceeding the rating limits are not experience rated, but included in the general pool of the local insurer with allocation of the insurer's standard local dividend on this portion of the coverage. The rating limits defined by Insurope are not affected by any modifications in free cover limits where local acceptance conditions are used.

Upon transfer of an employee from one country to another within the multinational pool, the transferred employee is insured by the Insurope Company in the country of arrival without any new medical formalities within the limits of the death benefit guarantees for which he was covered in the country of origin. If, however, the death benefit cover in the new country is higher, the increase is subject to the rules of the plan in the country of arrival as regards medical formalities. In any event, the Insurope maximum on local existing free cover limit is applied and, generally, the acceptance is on a "no worse" basis.

A client may appoint any of the network member insurers as the "Managing Company" for its multinational program. The Managing Company chosen represents the contractual party acting for Insurope within the framework of the Insurope Multinational Program.

Insurope provides very comprehensive financial reports, including a summary of past performance of the multinational pool and information on non-rated benefits and non-rated premiums.

Insurope's administration charge is based on a network scale and is related to the level of premiums and the nature of benefits pooled. It consists of a flat contract charge, independent of the premium volume, and a sliding-scale percentage of premiums. The scale is not subject to additional first year charges or discounts.

Distinctly identified as a separate retention item, Insurope's risk charge relates to the risks insurers incur in providing multinational pooling arrangements. The risk charge is based on the risk potential of the actual pooled plan in question. It takes into account the expected surplus, the expected claims and the statistical variation of these. Because of this it is heavily weighted to the number of units insured and the charge may decrease significantly for larger multinational pools. The existence of non-pooled insured retirement benefits reduces the risk charge for pooled risk benefits.

Insurope's retentions are widely recognised as among the lowest in the market.

Interest is credited on all monies held and paid for retirement plans. The rates are determined by local insurers based on their own portfolio investment results, depending upon the category of business.

Interest is credited or debited on cash-flow for risk monies, regardless of the premium payment frequency, and on reserves held for risk benefits and pensions.

Interest is also credited on dividends from the end of the account year to the date of transfer of dividend payment to the client.

Interest is debited on deficits and on losses carried forward. The interest calculation takes account of the dates of premium payments, as well as dates of claims and related reserves.

Local dividends are allocated in accordance with normal local practice and these dividends are guaranteed irrespective of the claims experience of the multinational pool.

The international dividend usually is paid out six months after the international account date, and interest credited on it as of the first day following the end of the accounting period. If a pool has more than 1,000 units and has generated average multinational dividends of more than USD 100,000 over the past three years, the parent company may request that an advanced dividend payment be made one month after the end of the accounting year. An estimate will be made of the result for that year and if this gives a surplus of USD 100,000 the payment will be 75 % of the estimated surplus. Multinational dividends may be paid, locally to participating subsidiaries, to a central point, or a combination of both.

Insurope has no specific provision for catastrophe risk. However, there is an overall loss limitation provision. Under the Carry Forward system if, at the end of an accumulation period, the loss carried forward is greater than a given multiple of the latest year's risk premium, the excess over this amount is borne by the network. The multiple is four if there are 200 to 499 units; three if there are 500 to 999 units; and two if there are 1,000 units or more.

Insurope provides great flexibility in allowing clients to discuss these loss cancellation limits adjusting the risk charge accordingly. This allows clients to tailor make their own arrangement in terms of risk borne allowing them to reach a compromise in terms of retention between stop loss and carry forward pooling systems.

In addition, the excess of a single claim above the free cover limit is absorbed by Insurope. If required, lower limits on a single claim can be arranged. Pools in a loss position are enlarged without subsequent surplus from new plans being used to offset existing losses.

Pooling may be terminated at any Anniversary Date provided that notice of intention to this effect is received, by registered mail, at the office of the Insurope Secretariat at least six months prior to the Anniversary Date of the Multinational Program.

On termination of the Multinational Program and the local benefit plans, the treatment of reserves held by the local insurer in respect of contractual benefits will be subject to local legal and contractual conditions.

Possible negative balances will not be offset by any part of the reserves that the Insurope Companies hold in respect of contractual benefits and local dividends accrued.

The final Multinational Account following notice of termination or lapse of Multinational Pooling will only be available when all claim liabilities are known.

When local contracts are cancelled, local conditions will apply and the plan will be excluded from the system of experience rating as of the date of "termination".