Multinational Pooling profitable but PMI lags behind

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Multinational pooling is proving profitable for global companies with average returns of 6.1%, research by Towers Watson has found.

In 753 pooling reports from 151 companies it was found that 64% were returning positive dividends.

The top performing pools produced a significant proportion of pooling returns with 28% of pools providing returns over 10%.

Not all areas however produce profits, the average life-only contract produces a 23% profit while medical results on average produces an 8% loss.

Profitability for pools varied widely by country, with Indonesia producing the strongest profits of 36% on average.

Some countries usually resulted in a loss, with Hungary on average producing a loss of 36%, Australia producing a 15% loss and Singapore a 9%.

Roger Beech, senior consultant at Towers Watson, said: "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."

He added: "Almost all countries produce surpluses overall, but what is very interesting is that the average life-only contract result is 23% while the average for medical is -8%. 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."

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