17 March 2015Actuarial & underwriting

Towers Watson highlights Guernsey advantage

In its latest study, Towers Watson has highlighted the attractiveness of Guernsey as a destination for captives.

The report, Global Approaches to Effective Benefit Financing, said that for captives, Guernsey produced the largest dividends at 65 percent. Japan followed closely at 61 percent, with Germany at 59 percent.

The lowest five performers are Denmark, India, Egypt, the UK and Guatemala, with Denmark positing returns of -77 percent.

Fifty-two captive reports spread across five insurance networks were submitted by 14 research study participants. Two-thirds of the reports (67 percent) showed a positive cash-flow balance.

According to the report, companies retained $37 million in earnings from premiums of $726 million, after claims and expenses were settled. This produced an average captive surplus of 5.1 percent of premiums reinsured (or transferred) to a company’s captive, with the median profit for a benefit captive of 11.3 percent.

Towers Watson said that the data shows that most captives make a profit, but a small handful of captives with very poor results bring the average down. In addition, some companies run their captive programmes close to break even, rather than as profit centres, and they provide significant local premium discounts through a centralised approach to pricing.

“These discounts represent additional savings beyond the results shown above. If we exclude these captives from the data, the average profit generated more than doubles, to over 11 percent. This suggests that the overall value of using a captive for financing employee benefits around the world can be understated,” said the report.