Welcome to the 7th Annual International Briefing and Golf Outing

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Welcome to the 7th AnnualInternational Briefing
and Golf Outing
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830 a.m. Welcome Hugh Gallagher, Insurope Ed
Baird, Prudential Group Insurance   840
a.m. International Relocation Michael Angel,
Prudential Relocation   920 a.m. Global Benefits
Strategy for Multinational Corporations Peter
Godfrey, Hewitt Associates   1000
a.m. Break   1015 a.m. Europe, Asia, Latin
American Benefit Update Danny Saelen,
Insurope   1055 a.m. Insurope Update Jim
Wallace, Insurope   1115 a.m. Wrap-Up Lori
High, Prudential Group Insurance   1125
a.m. Afternoon Logistics Hugh Gallagher,
Insurope
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Welcome RemarksEd BairdPresident, Prudential
Group Insurance
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The Challenges and Solutionsof Global Mobility

• Michael Angel, CRP
• SVP, Prudential Relocation

5
Costs Associated with Global Mobility

• Long-term assignments can cost 3-4 times the
  employees annual salary
• Expatriate assignments can cost anywhere from 1.5
  to 4 times what hiring a local employee would
  cost
• Largest costs associated are often housing and
  taxes (estimated up to 60 of some assignments)
• Double taxation
• Benefits prior to departure
• Long-term temporary housing or housing
  contribution

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So, Why International Assignments?Three Primary
Reasons Companies Send Employees on International
Assignments

• Global expansion open/start-up new facility
• Skills/knowledge
• transfer train local staff
• Global leadership development and succession
  provide international experience to employees on
  fast track

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Reducing Global Mobility Costs?

• Maximizing tax planning strategies and
  assignment-related costs
• Exploring options related to shorter-term
  assignments
• Developing more stringent candidate assessment
  and election programs candidate pools
• Focusing on assignment ROI and softer benefits
  that may help increase ROI
• Formal repatriation programs

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Practical Cost Savings

• Ensuring effective tax planning strategies are in
  place
• Gaining a keen understanding of actual assignment
  costs, etc.
• Evaluate areas of spending (add benefits that
  carry a small cost, but have large perceived
  value for the assignee)
• Engage organizations who core competency is
  managing mobility.

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Alternative Assignments

• Extended business travel
• Short-term assignments (three months to one year)
• Commuter assignments
• Localization of expatriates (paying closer
  attention and tracking assignment lengths to
  ensure there aren't any "lifetime" expatriates)

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Candidate Assessment and Selection Building a
Candidate Pool

• Self-assessment and self-selection
• Different tools and resources (behavioral
  testing, interviews with employees, management
  input)
• Performance Management

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Assignment ROI

• How does an organization measure success?
• Quantifying the "unquantifiable"
• How do benefits affect the assignments outcome?
• What benefits are most important for YOUR
  organization?
• The key soft benefits carry a small cost in
  comparison with the cost of a failed assignment

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Repatriation Programs

• Begin repatriation process before assignment
  begins
• Maintain contact with assignee
• Ensure periodic visits with home organization
• Gain an understanding of the assignment
  "investment"
• Repatriation is more than the physical return to
  the home country

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Global Benefits Strategy Compliance for
Multinational Corporations

• Peter Godfrey, FIA, EA
• Principal, Global Retirement Financial
  Management
• Hewitt Associates

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Agenda

• What is Global Benefits Strategy?
• Why have one?
• Elements of Global Strategy
• Plan Governance
• Taking it forward next steps

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What is Global Benefits Strategy?
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What is strategy?

• OED definition
• Management of an armyin a campaign, art of so
  moving or disposing troops or ships or aircraft
  as to impose upon the enemy the place and time
  and conditions for fighting preferred by oneself
• My definition
• A framework and set of principles and guidelines
  for designing, financing and delivering worldwide
  benefit programs in a way that best meets an
  organizations human resources and financial
  objectives

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What is a Global Benefits Strategy?

• An articulation of
• Guiding principles for designing and assessing
  the effectiveness of current programs
• The desired degree of global consistency across
  programs
• The mix of programs to be offered and the role of
  each
• The organizations competitive market for talent
  and its intended position in that market and
• The roles and responsibilities of the various
  parties e.g. Corporate HR, Regional HR, local
  HR, Corporate Finance, Region, Division, etc.
• More a statement of intent than a list of
  practices

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Why have a Global Benefits Strategy?
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Why have a regional or global strategy?

• Better governance documentation needs better
  risk management clarify decision-making
  processes
• Benefit design consistent approach
• Business strategy improved alignment of benefits
• Cost improved financial management
• Temporary Assignments minimizes barriers to
  cross-country transfers
• Employee engagement increases as benefits better
  understood and targeted
• Data improved data and knowledge
• Mergers and Acquisitions improved risk
  assessment and consistent approach

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Plenty of external factors are driving benefit
strategies
Average SARBOX compliance costs of 3.8m per
company" Sarbanes-Oxley Compliance Journal, 17
April 2006
By far the biggest costs GM faces are to support
its pension pledges and its healthcare promises
to pensioners. Financial times, 10 January 2005
Citigroup has continued the expansion of its .
business in Russia 2005
Corporate Americas pension headache is getting
worse,likely drag on company earnings in future
years. CFOs of large companies in the US and
the UK have warned that projects are being
abandoned and board level focus is being diverted
from core activities in the wake of pension
underfunding. The number of CFOs reporting a
credit downgrading rose tenfoldfurther 10 per
cent said pension deficit had led to a fall in
the company share price. Financial times, 10
January 2005
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Why Risk Management is a Big Deal Today

• Over the last several years
• Populations are aging, and
• Retiree populations are growing
• Interest rates have decreased in many countries,
  and
• Asset returns have been lower and more volatile,
  leading to.
• Heightened focus and increased legislation around
  global HR and benefits governance, leading to..
• Provider consolidation and global management of
  benefits
• Accounting has created more transparency
• Emerging trend to develop global healthcare
  strategy and manage healthcare at a global level

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Why Risk Management is a Big Deal Today

• Which has resulted in..
• Much larger and more volatile liabilities,
• Less asset coverage,
• Less control and more short-term focus, and
• Companies creating inventories and REACTING
• You are not in control in a reactionary mode

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Where are You on the Risk Spectrum?
Less Control More Control
Few processes are in place to ensure compliance regulatory and tax audits are feared. The organization is focused on compliance, has strong quality controls, and is prepared for potential audits.
Committee structures are loose and accountabilities are unclear. Committee structures and accountabilities are clear.
Actuarial and investment responsibilities are separate. Actuarial and investment analysis is integrated.
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Benefits risk exposure

• Financial
• Funding/accounting volatility
• Investment
• Pension liabilities compared to company size
• Legislative/compliance
• Benefit design
• Under- or over-competitive / inappropriate
  benefits

• Communication
• Not delivering the right message, leading to..
• Lack of employee awareness and under-appreciation
  of benefits
• Delivery
• Technology
• Administrative errors
• Fiduciary
• Reputational

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Differences Around the World

• Some country examples
• Occupational pensions vs. the State
• Tax relief
• Cultural approach to risk
• Investment markets
• Company structure and size

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Elements of Global Benefits Strategy
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Pillars of Global Benefits Strategy

• Plan Design
• Plan Financing
• Employee Communication
• Plan Administration
• Taking Control Decision-Making and Plan
  Governance

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Pillars of Strategy - Design

• Links with business goals/HR strategy
• Eligibility for Plan Participation
• Target benefit levels after full career
• Risk sharing with employees (e.g., DB/DC)
• Cost sharing
• Competitive positioning, e.g. median of
  comparator group

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Pillars of Strategy - Design

• Portability
• Inclusion of incentive/variable pay in pay
  definition
• Retirement Ages early, normal and late
• Mode of payment (lump sum vs. annuity)
• Benefits for special groups (e.g., executives and
  expatriates)
• Retention issues (e.g., vesting)
• Employee choice (e.g. contributions and
  investments)
• Coordination with social/mandatory programs

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Pillars of Strategy - Financing

• Funding
• Accounting
• Investment Strategy
• Tax management
• Risk management/control
• Multinational pooling

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Pillars of Strategy Employee Communication

• Training and Employee Development
• Messages should reinforce
• The value of each benefit component
• How programs work
• How changes in employee behavior will influence
  the success of the business
• The skills, experience, and behaviors that are
  necessary to succeed

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Pillars of Strategy Employee Communication

• Audience who should receive messages
• Media what media should be used to deliver
  messages
• Messages should everyone receive similar
  messages or should they vary

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Pillars of Strategy - Administration

• In-house/outsourced
• Vendor selection/management
• Preferred vendors

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Pillars of Strategy Decision-Making

• Governance process - local, central or shared
• Roles and responsibilities governance structure
• Accountability - who makes decisions about what
• Approval process

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Plan Governance
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Why do we need a global governance framework?

• Improve delivery of retirement benefits
• Improve risk management
• Improve quantity and quality of management
  information available
• Support MA activity
• Improve central control and monitoring
• Improve central support to the businesses

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Governance Framework

• Governance process - local, central or shared
• Roles and responsibilities governance structure
• Accountability - who makes decisions about what
• Approval process
• First step is discovery? Whats out there?

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Range of Approaches to Governance

• Local Country
• Each country applies appropriate program design,
  award, and vehicle based on local market practice
• Close link to local competitive market, tax and
  regulatory issues

• Regional Approach
• Regionally-driven with some coordination
  world-wide
• Program design determined on regional basis and
  applied consistently
• Global or regional plan design with some
  accounting for local tax and regulatory issues

• Global Approach
• Corporate-driven with little to no input from
  regions or countries
• Programs determined on typical US scales and
  ranges
• Global plan design occasionally taking into
  consideration local tax and regulatory issues

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Roles and Responsibilities
Compliance with laws
Competitive practice
Financial considerations
Vendor changes
Business Case
External resources (actuary, insurance company,
HRIS etc.)
Regional HR, Finance
Proposal Preparation
Local operation benefit management team
Applicable PoliciesFinancing, IT, Benefits
Corporate Inventory Database
Corporate Rewards Management
External resources (actuary, insurance company,
HRIS etc.)
Review/Analysis
(HR, Finance, IT, Accounting)
Senior Management, Corporate Team
Pension Committee (as appropriate)
Approval
Implementation
Local Operation
Competitive Benchmarks
Performance Process
Investment Strategy
Monitoring
Employee Engagement
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Roles and Responsibilities
Activity Corporate Local Operation
Philosophy and principles for design Provide guidance facilitate process for input from other functions (e.g. finance and tax), local operations and external resources Provide input for Corporate Apply philosophy and principles Work with local finance and tax management
Compliance with local laws and requirements
Competitiveness of programs
Financing
Administer, communicate plans
Corporate programs
Change of plans
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Taking it forward next steps
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Taking it forward next steps

• Collect benefit plan data
• Establish multi-country, multi-functional task
  force
• Communicate objectives and key drivers
• Establish areas of consensus
• Resolve tough issues
• Evaluate alternatives and implications for
  programs
• Articulate strategy and seek approval

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Europe, Asia, Latin AmericanBenefit Update

• Danny Saelen
• Chief Operating Officer, Insurope

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Agenda

• Europe
• The Netherlands the new WIA Disability Act
• The UK age discrimination
• Asia
• South Korea retirement pensions
• China Benefit overview
• Latin America
• Brazil New legislation
• Mexico some trends

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The Netherlands

• The new WIA Disability act

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The New WIA Disability Act

• First two years employers responsible for
  continued payment re-integration efforts
• After two years
• UWV determines degree of disability
• Two legal coverages

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Based on degree of disability

• WGA resumption of work for partially disabled
  persons
• if above 35 and below 80
• If above 80 but not permanently disabled
• IVA income provision for long term fully
  disabled persons
• If above 80 and permanently disability

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WGA

• 1st phase
• wage-related benefit paid (capped, 70)
• Limited in time
• 6 months to 5 years (dependent on age)

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WGA

• 2nd phase
• USAGE OF EARNINGSCAPACITY
• Ex. Wage 50,000 and earningscapacity 25,000
• Disability degree 50

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WGA

• 2nd phase (1)
• Person does not work enough(lt50)
• Wage(capped) related benefit
• disability degree determines
• capped by minimum wage
• Ex. Disability degree 50 - wage 50,000
• 35 of min(wage,16,392)
• ie 5,737
• WGA Continuation

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WGA

• 2nd phase (2)
• Person does work enough (gt50)
• wage(capped) related benefit
• (ex. 50,000)
• disability degree (ex. 50)
• capped by WIA max wage
• 70 of (43,848 25,000)
• ie 13,194
• WGA Income supplement

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IVA

• Wage-capped related benefit
• Ex. Wage 50,000
• 70 of min(wage,43,848)
• ie 30,694

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Coverage A WGA Gap

• Person does NOT work enough (lt50)
• Supplements the WGA continuation benefit
• Based on disability degree and WIA capped wag
• Ex. Disability degree 50, wage 30,000
• 35 (30,000 - min(wage,16,392))
• ie 4,763

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Coverage B WGA Additional Benefit

• Person does work enough (gt50)
• complements the WGA Income Supplement
• Up to 70 of WIA capped wagedisability degree
• (ie 70 50 43,848 15,347)

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Coverage C WIA Top Hat Scheme

• Same coverage as old WAO Supplemental Insurance,
  but now for both IVA and WGA benefit
• IVA top hat scheme
• complement state benefit based on
• below WIA cap 10 of salary
• or
• above WIA cap complement up to 70/75/80 of
  full salary

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Coverage C WIA Top Hat Scheme

• WGA top hat scheme
• Similar to IVA system but pay-out ratio dependent
  upon disability degree
• below WIA cap
• 10 of WIA capped salary pay-out ratio
• or
• above WIA cap
• (70/75/80 of wage 70 of WIA capped wage)
• Payout ratio

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The UK

• Age discrimination

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EMPLOYMENT EQUALITY (AGE) REGULATIONS 2006

• October 1, 2006 new regulation outlawing all
  unjustified direct or indirect discrimination,
  harassment and victimisation on the grounds of
  age in employment in the UK

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EMPLOYMENT EQUALITY (AGE) REGULATIONS 2006

• Main issue retirement age
• Government default age 65
• Unless employer can justify lower retirement age,
  employee allowed to work to age 65

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EMPLOYMENT EQUALITY (AGE) REGULATIONS 2006

• When employer maintains NRA lt 65 unless
  objective justifications of NRA, employee have
  the right work to age 65 as of 1 October 2006
• Canada Life will allow normal cover (GLA, GIP,
  GCI) to be extended to age 65, (below free cover)
  if employee actively at work
• Remark
• For GIP expiry age maintained no cover

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EMPLOYMENT EQUALITY (AGE) REGULATIONS 2006

• When employer increases NRA to age 65 for all
  employees
• Cover will be provided to employee wef date of
  change.
• Employees whose cover ceased at previous benefit
  cease age, but who continue active employment
  automatically included (below free cover), if
  actively at work when benefit cease age is
  extended.
• Remark
• Claims in payment will stop at old NRA

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EMPLOYMENT EQUALITY (AGE) REGULATIONS 2006

• When employer maintains or extends to age 65,
  but allows employees to continue after that age
• Continuation of insured benefit subject to
  evidence of insurability ( actively at work
  statement)
• Canada Life will allow cover up to maximum age
  70.
• Remark
• Claims in payment will stop at old NRA

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South Korea

• New Retirement plans

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• Employee Retirement Income Security Act (ERISA)
  will be effective as of December 1, 2005.
• All employers with more than 5 employees need to
  select at least one retirement program out of
  current Retirement Allowance System (RAS),
  Defined Benefit plan and Defined Contribution
  plan.

Current
New
RAS
New ERISA Plan
RAS
Book Reserve
Dec. 2005
DB
External Funding (Retirement Insurance or Trust)
Pension
DC

• New retirement insurance or trust will not be
  available after December 1, 2005
• and existing retirement insurance or trust will
  not be available after December 1, 2010.

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Comparison
Items RAS DB DC
Contribution Employer Employer Employer, but can charge Employees
Employees consent Needed Needed Needed
Payment form Lump Sum Lump Sum/Annuity Lump Sum/Annuity
Minimum Benefits 8.33 of final pay per year of service 8.33 of final pay per year of service 8.33 of each years pay
EE education Not required Minimum Extensive
Early withdrawal Unlimited Limited via loan Limited via Loan or Early Withdrawal
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Comparison
Items RAS DB DC
External Funding Level Voluntary (usually up to 60) Mandatory up to 60 Mandatory up to 100
Investment Risk Employer Employer Employee
Asset Management ? Retirement insurance - Guaranteed income Retirement trust - Guaranteed principal ? Guaranteed income - insurance - CDs - Treasuries, bonds Investment - Variable insurance - Stocks - Mutual funds ? 70 limits on risky assets Same as DB plan ? Direct investment in stocks is prohibited.
Asset/Liability Reporting Yes Yes None
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China

• Benefit update

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Life/ADD
Coverage Benefits
Term Life ADD TPD (lump sum) 24 times/36 times monthly salary
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Supplementary Medical Plan

Coverage Benefits
Outpatient Inpatient Hospital Subsidy Maternity Critical Illness Public Funds OPIP sum assured RMB 20,000 per person/year, 90/100 reimbursement Hospital subsidy RMB 100/day, max 180 days Maternity RMB 5000, on top of social insurance per year Critical IllnessRMB 200,000 per person/year Depends on the population
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Occupational Pension

• Voluntary second pillar
• Co-contribution by employer and employee
• Trust-based system
• Transferable but not withdrawal compatible
• 5 key rolesTrustee, Administrator, Investment
  manager, Custodian, Intermediary

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Occupational Pension

• 37 financial institutes qualified for providing
  OP service
• No one-stop provider, our member company Ping An
  obtained the license of trustee and investment
  manager
• Local tax incentives on the employer contribution

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Policy based pension

• Simple flexible
• DC DB plan
• Conditional withdrawal right
• No tax incentive
• Offered only by insurance companies

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Market trend of supplementary pension

• Most buyers are domestic and local companies
• Only a few MNC subs in China have set up pension
  plans
• Many are interested and waiting

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Brazil

• New legislation

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Typical benefits

• Life
• AD
• TPD in case of illness or accident
• Dependants cover
• Medical

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Some key elements

• TPD reform
•  functional disability 
•  working disability 
•  accidental 
• Renewal
• Implicit versus explicit

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Some key elements (contd)

• Commission disclosure
• Contributory schemes
• Benefit changes
• Local dividend
• Claims turnaround (30 days max)

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Mexico

• Some trends

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Trends

• Non-Par versus Par
• Market share 35 versus 65
• Par option compatible to pooling
• Increase of use of network providers
• GNP now 80
• Flex plans

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Insurope Update

• Jim Wallace
• Chief Executive Officer, Insurope

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New network partners

• Bosnia Herzegovina Raffeisen Osiguranje
• Bulgaria Vitosha Life
• Croatia Uniqa
• Russia Ergo / Russ

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Change of network partner

• Ireland
• - Hibernian Life and Pensions

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Network partners

• Representation in 78 countries

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Network survey 2005 Insurope

• Number of clients - maintained position as No 2
• Pooled premiums - continued to increase market
  share

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Pricing

• Margins in small cases
• Competitive pressures on larger plans
• - will not pool in certain circumstances

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Loss carry forward system

• Option maximum loss carry forward period
• to add to
• Cancellation above a multiple of premium or USD
  amount

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• World Investment Prospects to 2010 Boom or
  Backlash
• EIU / Columbia Program on International Investment

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FDI - drivers

• Global economic growth
• Better business environments
• Technological change
• Competition search for competitively priced
  skills low cost destinations

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FDI - constraints

• Security threats
• Fears of consequences of globalisation
• Protectionism
•  Economic patriotism 

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Leading outward investors (Outward FDI stock
2005)
1. U.S.A. 6. Hong Kong
2. U.K. 7. Canada
3. France 8. Switzerland
4. Germany 9. Japan
5. Netherlands 10. Spain
91
Outward investment

• Multinationals from emerging markets
• Regional approach
• Cultural ties

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Inward FDI Stock 2005
1. U.S.A. 6. Netherlands
2. U.K. 7. Hong Kong
3. Germany 8. Spain
4. China 9. Canada
5. France 10. Belgium
93
Expected ranking of inward FDI recipients 2006 to
2010
1. U.S.A. 6. Germany
2. U.K. 7. Canada
3. China 8. Belgium
4. France 9. Hong Kong
5. Netherlands 10. Spain
94
Expected ranking of inward FDI recipients 2006 to
2010
11. Italy 16. Mexico
12. Sweden 17. Brazil
13. Singapore 18. Australia
14. Russia 19. India
15. Ireland 20. Switzerland
95
China

• General Assembly 2006
• Insurope representative based within Ping An
  Daniel Zhou

96
China

• Significant market growth rate
• Competition
• Staff turnover

97
China

• Issues on medical
• Cross-subsidy from other covers
• To pool or not to pool

98
U.S.A.

• Continued growth in pooled business with
  Prudential
• Market pressure on employer paid group life
  premiums
• Lack of coordination of U.S. domestic and
  international benefits

99
Morning Wrap-Up Lori High SVP, Sales,
Marketing and Service Prudential Group Insurance
100
Different Subsidiaries
Different Benefit Programs
DifferentLegislation
Different Providers
DifferentSocial Systems
Different Benefit Claim Experience
DifferentFiscal Systems
101
Afternoon Logistics Hugh GallagherNetwork
Marketing DirectorInsurope
102
Afternoon Logistics
1130 a.m. Box Lunch, Driving Range Open   1230
p.m. Tee Off   430 p.m. Cocktail Reception /
Golf Awards   630 p.m. Bus Returns to Hotel
Monaco