Continued low interest rates within the Eurozone area are having a knock-on impact across a range of insurance products.
Continued low interest rates within the Eurozone area are having a knock-on impact across a range of insurance products.
One of the affected products is Multinational Pooling. Multinational pools allow a multinational employer to benefit from the combined purchase of risk benefits in many regions and potentially receive a profit dividend if the company’s overall claims experience is positive. A consequence of the persistently low interest rate environment is that it is no longer suitable for a multinational company to continue to pool Spouses Death in Service (SPDIS) benefits. When a claim occurs, SPDIS benefits function as annuities that are typically paid out over a very long period of time. The assets used to back these annuities are very long-dated, secure government bonds (30 years+), which are particularly sensitive to changes in interest rates.
This leads to very volatile claims experience within schemes that provide SPDIS benefits. The value of a claim will not only vary by the salary of a member, but also the age of their dependant and the prevailing interest rate at date of death. Insurance companies use a range of tools not available to multinational pools to control these risks, such as pre-purchase of assets or reinsurance of very large individual benefits. Without these tools, a pool is exposed to large deficits from single claims. This is why this risk is unsuitable for a multinational pool.
Despite its small size, Ireland has a far higher prevalence of insured SPDIS benefits than other regions. This has resulted in a number of cases where a single SPDIS claim within Ireland has placed an entire multinational pool into deficit, and removed any possibility of an international dividend.
By removing extremely volatile Irish SPDIS results from their Swiss Life pools, clients will benefit from smoother profit dividends and more predictable results. Lump sum death in service benefits and income protection benefits will continue to be 100% pooled within the Swiss Life Network. In addition, Irish Life will continue, at client request, to report SPDIS benefits in multinational pooling accounts, which will allow them to be included in international benefit reports. We are confident that this change will strengthen the sustainability of the Irish Life/Swiss Life pooling partnership.
