Multinational pooling arrangements are generating annual average returns of 6.1 per cent, with returns boosted by life but held back by medical business, according to a new research study conducted by Towers Watson.
The research analysed 753 multinational pooling reports from 151 international companies containing £1.5bn of premiums. It found that 64 per cent of multinational pools analysed returned positive dividends. The research also revealed that top performing multinational pools produced a significant proportion of the returns with 28 per cent producing dividend returns in excess of 10 per cent.
It found the average life-only contract created a 23 per cent return while the average for medical was -8 per cent.
The research also unearthed the wide discrepancy in performance between different countries, with profitability levels for Indonesia and the Czech Republic hitting 36 and 33 per cent of premium respectively. Only six countries around the world failed to produce positive average returns from multinational pools with Hungary (-36 per cent) producing the worst results along with Australia (-15 per cent), Canada (-11 per cent), Singapore (-9 per cent) and China (-1 per cent).
Towers Watson senior consultant Roger Beech says: “With operational cost reduction and synergies still very much at the top of the Corporate agenda, multinational pooling is an increasingly popular way for companies to use their global spending power to achieve savings and at the same time spread the risk of their employee benefit plans across multiple geographies and business areas.
“There is an increasing understanding among global companies that pro-actively managing multinational pools is a relatively easy way of saving the business money while improving the understanding and management of employee benefits. It is also apparent that the top performing pools generate a big share of the profits. At the other end of the spectrum, we also know from our experiences of working with global companies in this field that some companies deliberately manage their pools with a view to reducing the upfront premiums as opposed to maximising dividends. This suggests that proactively managed pools tend to outperform their passive counterparts in delivering improved financial performance to their sponsors.
“Almost all countries produce surpluses overall, but what is very interesting is that the average life-only contract result is 23 per cent while the average for medical is -8 per cent. This immediately suggests companies need to consider very carefully whether to pool stand-alone medical contracts or absorb potential losses from medical contracts should they occur. If they choose to pool they will need to consider a number of factors including past claims experience, current local country medical cost inflation, proposed premium levels and the existing diversity of risks and premium within the pool.”