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Coca-Cola finds captive insurer most efficient way to fund benefits

Posted On: Feb. 4, 2015 12:00 AM CST

BOCA RATON, Fla. — For The Coca-Cola Co., the advantage of funding employee benefit risks through its South Carolina-based captive insurer is very straightforward.

“It is a more efficient way of providing benefits,” said Stacy Apter, Coca-Cola's director of global benefits financing and asset management in Atlanta.

Speaking Tuesday at a session of the 25th annual meeting of the World Captive Forum in Boca Raton, Florida, Ms. Apter said captive benefits funding ensures that the company pays the “real cost of providing benefits” rather than a premium to a commercial insurer that includes a profit for the insurer.

Among other things, Coca-Cola uses its captive, Red Re Inc., to fund international life, disability and medical insurance benefits. In 2013, the company also received authorization from the U.S. Department of Labor to fund accidental death and dismemberment benefits for U.S. employees through the captive.

There are other advantages to captive benefits funding, Ms. Apter said. For example, funding benefit risks diversifies a captive's book of business while also ensuring greater predictability of costs compared with buying benefit coverages in the commercial market, where rates can fluctuate wildly from one year to the next.

“We are not going to price coverages at a deficit to keep the business,” Ms. Apter said.

Still, there are challenges to funding benefit risks through captives, Ms. Apter said, noting that a “hands-on approach” is required.

“It is not an autopilot program,” she said.

In addition, it took “lots of travel and meetings” to get local Coca-Cola units abroad to participate, she said.

At the same time, “You have to explain to local managers how” captive benefit funding works, said Pascal Prevost, an executive with Nestle S.A.'s group risk services in Vevey, Switzerland, who also spoke at the WCF session.

Worldwide, roughly 70 to 80 employers use their captives to fund benefit risks, said Mark Cook, a principal with Towers Watson & Co. in London, another speaker at the session.

“There is a lot of interest in this area,” he said.

Indeed, just last month, two U.S. big employers — Hormel Foods Corp. in Austin, Minnesota, and Sealed Air Corp. in Charlotte, North Carolina—filed applications with the Labor Department seeking DOL approval through a rapid regulatory review procedure to fund certain benefit risks through their Vermont captives.

The department is expected to hand down its rulings sometime in March, which, if favorable, could spur additional employers to expand their captives to fund benefit risks, experts say.