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HOSTED BY

Lynn Moakley, MMA Trion

Jeff Moellering, MMA Upper Midwest Region – St. Louis

FEATURING

Theresa Stenger, MMA Trion

Lisa Perfetti, MMA Upper Midwest Region – St. Louis

05/01/2019

Is a Stop Loss Captive Right For You?

Marsh & McLennan Agency LLC

Agenda

1. Self-Funding

2. Stop Loss Captive

3. MMA CapAbilityPlus

4. RightPath

5. RightPath vs MMA Capability Plus

Marsh & McLennan Agency LLC April 30, 2019

For employers that want to manage their risk and stabilize stop loss costs, MMA has a solution.

Employers are facing challenging market conditions:

Fully insured groups have little control on costs, plan designs & are subject to state

mandates

When the claims run well the carrier keeps the savings, whether it’s through fully insured

medical or traditional stop loss

The traditional stop loss market is hardening

quickly with more risk being transferred to the

employer with high renewals and lasers

T H E C U R R E N T C H A L L E N G E


Of all size firms were self funded in 2018

Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 2018.

Self Funded By Firm Size

61%

S E L F - F U N D I N G

Firm Size % Self Funded

50-199 Workers 20%

200-999 Workers 50%

1,000-4,999 Workers 87%

5,000 or More Workers 91%


Self-funded employers operate their own health plans and assume the financial risk for employee claims.


$

$


To protect themselves from catastrophic claim expenses, self-funded employers will purchase stop loss insurance.

$$

$$$

$

C L A I M S


Stop Loss

6

Captive Solutions can help Employers take advantage of self

funding while capping their exposure.

I N S U R I N G Y O U R R I S K


A group of employers coming together to spread the risk of their self-funded medical/Rx plan through multiple layers of stop loss insurance

Each employer covers their own claims up to a set deductible, then that risk is shared or pooled across the captive. Catastrophic risks are insured through the carrier

Enables member employers to share in the savings if claims experience is good

Stop Loss Captive

S T O P L O S S C A P T I V E

Stop

Loss

Captive


5. Employers participate in the insurance profits and losses of the captive cell

S T O P L O S S C A P T I V E

A B C

Excess Risk Layer

Shared Captive Risk Layer

Specific Stop Loss Deductible4. The Stop Loss Carrier reinsures

the excess risk layer above the Specific Stop Loss Deductible and Captive layer.

3. A portion of the specific stop loss premium is ceded to a shared captive risk layer to cover claims and fees.

2. Each employer chooses their own Specific Stop Loss Deductible, TPA and Benefit Plan Design

1. Multiple employers of varying sizes join the Captive cell.


30%

20%

34% 33%

29%

42%

32%

37%

5% 4%

12%9%

1%4% 4%

2%

All Employers 500+ Manufacturing Whlsl./Retail/Trade Services Trans./Comms./Util. Healthcare Financial Svcs. Government

Employers with 500+ Employees

Currently use a Captive for Stop Loss Considering

Source: Mercer's National Survey of Employer-Sponsored Health Plans 2018.

I N T E R E S T I S G R O W I N G


S T O P L O S S C A P T I V E G O A L S

Move Small to Mid-Size employers to self-funding while minimizing volatility

Employers can see benefits from paying their own claims without insured admin costs

Lower fixed cost increases

Help employers take control of their data

Profit distribution to participating employers

11

MMA CAPTIVE SOLUTIONS

MMA CapAbilityPlus

RightPath


Collateral required upfront to cover

claims that exceed captive

premiums collected

Specific Stop Loss Only Risk

Floating Layer Captive

Deductible

Captive Manager and Reinsurance Carrier: Tiokio Marine HCC

No Start Up Capital

Required

AOR Protection

MMA CapAbilityPlus S T R U C T U R E

July 1 renewal date once

in the Captive

Small to Mid-Size

Employers (50-750)

$100,000Captive Layer Deductible

Best in Class contract options

No Laser,Rate Cap

Best in Class contract options

No Laser,Rate Cap


$50k $75k $100k

Excess Risk Layer

Shared Captive Risk Layer ($100,000)

Specific Individual Retention

F L O AT I N G C A P T I V E L AY E R

1. Each employer chooses their own specific deductible based on their own risk tolerance and premium needs.

2. Captive layer is the same for each employer above each specific deductible ($100,000).

3. A set portion of the stop loss premium is “ceded” to the shared captive risk layer, “floating” on top of each emploeyr’s specific deductible.

4. If the premium ceded to the captive layer exceeds claims/fees, profit is shared among participating employers.


J U LY 1 R E N E WA L D AT E

JULY 1, 2019

12 Month Contract

MARCH 1, 2020

Short contract,

renew July 1, 2020

JUNE 1, 2020

Long contract,

renew July 2021

AUGUST 1, 2019

Short contract,

renew July 1, 2020

APRIL 1, 2020

Long contract,

renew July 2021

Marsh & McLennan Agency LLC 15

C AP T I V E P R I C I N G E X AM P L E

Annual Premium:

$699,000

Traditional

Stop Loss Insurance

$60,000 Specific Stop Loss Deductible

MMA Capability Plus Stop Loss Captive

$60,000 Specific Stop Loss Deductible

Excess

Layer

Captive

Layer

Total Annual Premium: $699,000

Captive Layer: $331,000

Excess Layer: $368,000

Employer has 282 covered employees


$40,000Excess Layer

TMHCC covers remainder of claim using non-ceded stop loss premium

$60,000Employer Layer

Each employer may choose their own Specific Level

$100,000Captive Layer

The most the captive can pay on any one claim

S I N G L E C L A I M E X A M P L E

$200,000Single LargeShock Claim


P R O F I T D I S T R I B U T I O N E X A M P L E

Total Claims Fund from Premiums ceded to the Captive Layer: $713,000

Claims Paid from the Captive layer claims fund: $594,000

Money left over in the Captive Claims Fund will be distributed to all employers: $119,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

ER1 ER2 ER3 ER4 ER5 ER6

Claims Paid from Captive Layer by Employer


W H AT I S C O L L AT E R A L ?

2

1 3

Stop Loss RiskEmployers agree to take on portion of the risk in captive

layer.

SecuritizationEmployers provide

securitization to captive manager

ProfitsIf premium ceded to

captive layer exceeds claims/fees, collateral

is returned. OR

If premium collected does not cover claims in the captive layer, collateral is used.

(Net Ceded Premium X 125%) - Captive Claims Fund = Required Collateral

$

!

$


C A P T I V E L AY E R M A X I M U M L I A B I L I T Y

The Captive Aggregate Attachment Point is the maximum liability of the Captive.

It is the expected claims plus a 25% corridor.

Corridor

Made up of employer’s collateral and only used if claims exceed expected

25%

Expected Claims

Ceded Premium less Carrier Front & Admin Fees and Premium Taxes plus any commissions

Performance

The captive performs poorly when there is a high frequency of large claims – not severity of individual claims


LETTER OF CREDITLUMP SUM

CASH PAYMENTMONTHLY

CASH PAYMENT

H O W I S C O L L AT E R A L PA I D ?

Employer requests Letter of Credit from bank for specific amount and period of time

Must be good through 6 months after close of policy period

Must provide original LOC each year they participate in captive

Employer provides cash payment to captive manager to

hold in trust for the year

Employer pays 1/12th total collateral as a line item on a monthly premium payment to

captive manager


How A Captive

Strategy Made

Self Funding A

Reality

The ChallengeThey had favorable claim experience and good employee demographics but were continually receiving double digit renewal increases from their insurance carrier.

Interested in self-funding but wanted limited risk and little volatility

The SolutionTaking advantage of their favorable claims experience, they implemented a self-funded medical plan choosing their own third party administrator and purchased a specific stop loss deductible of $55,000 with Tokio Marine HCC (TMHCC).

By purchasing aggregate stop loss insurance with TMHCC they knew their what maximum claim liability would be.

They also joined the MMA Capability Plus Stop Loss Captive with TMHCC for NO ADDITIONAL premium.

At the end of the year, the MMA Capability Plus Stop Loss captive will refund them some of the specific stop loss premium they paid if the captive runs well despite the employer’s own claim experience.

The ResultDespite having several large

claims the first year of self-funding, their claims and fixed costs were lower than the fully-insured premiums they paid the year before.

Their first renewal with TMHCC resulted in just an 8% increase to their specific stop loss premiums.

Because the captive as a whole ran well, they were refunded over $30,000 which equaled 15% of the total specific stop loss premium paid to TMHCC that first year of self-funding.

C A S E S T U D Y

The Client: A Health Services Provider | 110 Employees

The Objective: Seeking long term solution to increasing costs of their fully insured medical plan


C A L C U L AT I O N F O R C A P T I V E E M P L O Y E R R E N E WA L S

BLOCK RENEWAL

Employers will not face the volatility of a renewal increase based on just their group’s claim experience

Law of Large Numbers will result in lower fixed cost increases


A d v a n t a g e s

• Employers chose their own TPA., design their own benefits and set their own specific stop loss deductible.

• Pay the same premium as traditional stand alone stop loss coverage.

• Premiums are refunded to every employer participating in the captive when premiums paid exceed claims.

• Less volatile renewals.

24

MMA CAPTIVE SOLUTIONS

MMA CapAbilityPlus

RightPath


S T R U C T U R E S U P P O R T

Individually Underwritten

Jan 1 renewal date

Underwritten by TMHCC who

covers 700 Employers through

Captives today$200,000 Floating Captive

Deductible Layer

Available to MMA, Marsh and

Mercer Clients

Monthly reporting

Managed by Marsh

Cayman

Annual Board

Meeting in Grand

Cayman

Cost Containment Strategies brought to the Captive members for

consideration during virtual

quarterly meetings

D I F F E R E N T I AT O R S

$1.125 Millionin surplus returned over last 4 years

Profit Sharing Single Digitaverage renewal

TLO OptionModest 20%

Collateral Requirement

Captive Aggregate covered at no additional cost

ProprietaryCaptive

R I G H T PAT H S T R U C T U R E


F L O AT I N G C A P T I V E L AY E R

1. Each employer chooses their own specific deductible based on their own risk tolerance and premium needs.

2. Captive layer is the same for each employer above each specific deductible ($200,000).

3. A set portion of the stop loss premium is “ceded” to the shared captive risk layer, “floating” on top of each emploeyr’s specific deductible.

4. If the premium ceded to the captive layer exceeds claims/fees, profit is shared among participating employers.

*No Aggregating Specific Deductibles with the Captive.

$75K$100K

$125K

Excess Risk Layer

Shared Captive Risk Layer ($200,000)

Employer Layer

$275K

$300K

$325K


J A N U A R Y 1 R E N E WA L D AT E

JANUARY 1, 2019

12 Month Contract

AUGUST 1, 2019

Short contract,

renew January 1, 2020

DECEMBER 1, 2019

Long contract,


FEBRUARY 1, 2019

Short contract,


SEPTEMBER 1, 2019

Long contract,



$90,000Excess Layer

TMHCC covers remainder of claim using non-ceded stop loss premium

$60,000Employer Layer

Each employer may choose their own Specific Level

$200,000Captive Layer

The most the captive can pay on any one claim

S I N G L E C L A I M E X A M P L E

$350,000Single LargeShock Claim


Captive Aggregate provided by HCC Life

Net Ceded Captive Premium

Collateral From Employers

A G G R E G AT E C L A I M E X A M P L E

Ag

gre

ga

te C

ap

tive

Cla

ims

Captive Risk limited to 120% of Net Ceded Premium

TMHCC covers captive claims beyond the 120% with Captive Aggregate Risk

Employer’s collateral covers gap between end of Net Ceded Premium and beginning of Captive Aggregate


How RightPath

Saved An

Employer $332K

The Challenge The Solution The ResultThe client was looking at the self-funded market standard in order to have more flexibility in the plan design and better manage their overall risk. They chose a comfortable $25,000 specific deductible level with a total premium of about $886k .

The Client:Health Care Services Company | 278 Employees

Taking advantage of their favorable claims experience, they selected the RightPath Captive with Tokio Marine HCC (TMHCC).

The Client purchased $25,000 for one share of RightPath Stock.

After the initial stock purchase, reduction for captive expenses and the accounting for the captive as a whole was completed, the Client received a net surplus of more than $332K.

Since joining RightPath this client has saved more than $425k and has an average stop loss renewal of 3% vs. just accepting the leveraged trend renewals each year.

RightPath Traditional Stop Loss

Total Premium $885,669 $841,386

Premium Ceded (Paid) to the Captive $753,039 N/A

Less Captive Expenses -$234,411 N/A

Net Ceded (Paid) Premium $518,628 N/A

Total Claims -$134,590 $0

Shared Risk Transfer -$26,465 N/A

One Time Stock Ownership Purchase -$25,000 $0

Net Surplus Returned to Employer $332,573 $0

C A S E S T U D Y


C A L C U L AT I O N F O R R I G H T PAT H R E N E WA L S

INDIVIDUALLY UNDERWRITTEN

The Premium is based on each member company’s experience

Allows the Captive to determine how to best handle and manage the risk (including use of lasers)


Captive

Member 1

Captive

Member 2

Captive

Member 3

Captive

Member 4

Captive

Member 5Totals

A Claims Loss Fund $227,500 $292,500 $357,500 $422,500 $487,500 $1,787,500

B Loss Fund Claims $323,000 $142,500 $393,250 $300,000 $100,000 $1,258,170

C Member Surplus/Deficit (A-B) -$95,500 $150,000 -$35,750 $122,500 $387,500

D Experience Assessment (Collateral Call) $45,500 $0 $35,750 $0 $0 $81,250

E Captive Member Excess Loss Sharing $50,000 -$9,500 -$11,500 -$13,500 -$15,500

F Percent of Premium 19% 23% 27% 31%

G Collateral to secure experience assessment and captive aggregate layer $45,500 $58,500 $71,500 $84,500 $97,500

K Captive Net Surplus(Captive Member Dividends) (C+D+E) $0 $140,500 $0 $109,000 $372,000 $621,500

In this scenario Captive Members 2, 4 & 5 had a surplus but Captive Members 1 & 3still benefited because their bad claims experience was spread over the rest of the captive.

C A P T I V E F I N A N C I A L M O D E L

33

Next Steps


Moderate risk

M M A C A P T I V E S C O M PA R I S O N

MMA CapAbilityPlus Right Path Reinsurance

Highest rate of return

Greater control due to ownership

Individually underwritten

Low to moderate risk

Participate in program profitability

Turnkey solution

Best in class Contract Options

Block renewals

!!

$

Best in class Contract Options


KEY VENDOR

PARTNERSHIP

MARSH CAPTIVE

EXPERTISECREATIVE SOLUTIONS

MARKET LEADER CAPTIVE EXPERTISE FLEXIBILITY

Customized proposal for each group:

35 years of experience and ability

Dedicated captive management,

consulting, and actuarial colleagues

around the globe

MMA captives offer you choice and

control

SUCCESS MARKET LEVERAGE CLIENT FOCUS

18 + current captive cells

820+ covered employers

$303m + in stop loss premium

more than 120,000+ employees

reinsured

Captives managed by Marsh

write more than $44b of premium

20% of the world captives are

managed by Marsh

Center of excellence team focused

on innovation

and education

HIGH INDUSTRY RATINGS

Financial stability confirmed

by major rating agencies

M M A A D VA N TA G E S


Questions?

Contact Your MMA Representative for a Captive Stop Loss Proposal


MarshMMA.com

This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Marsh & McLennan Agency, LLC shall have no obligation to update this publication and shall have no liability to

you or any other party arising out of this publication or any matter contained herein. Any statements concerning actuarial, tax, accounting or legal matters are based solely on our experience as consultants and are not to be relied upon as

actuarial, accounting, tax or legal advice, for which you should consult your own professional advisors. Any modeling analytics or projections are subject to inherent uncertainty and the analysis could be materially affective if any underlying

assumptions, conditions, information or factors are inaccurate or incomplete or should change. Copyright © 2019 Marsh & McLennan Insurance Agency LLC. All rights reserved.

is a stop loss captive right for you? - microsoft... · the captive cell stop loss captive a b c...

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