Google Captive in Hawaii on Track
Web search giant Google Inc. has been granted tentative approval from the Department of Labor to form a captive insurance company in Hawaii to cover employee benefits for thousands of the Mountain View, Calif.-based web giant’s U.S. workforce.
The tentative approval puts the firm one step closer to forming the captive under its wholly owned captive insurance company, Imi Assurance Inc.
Google made the request in November and the department gave tentative approval on Jan. 14. According to DOL, Google’s request is now contingent on the department’s approval of Google’s plan to notify employees of the exemption. Final authorization is set for March 15.
The application was filed by George O’Donnell, senior vice president with Aon Hewitt in Somerset, N.J. O’Donnell has filed similar proposals for a host of high-tech companies lately, including a successful request on behalf of Microsoft Corp.
O’Donnell’s role is evaluating the feasibility of such transactions, then designing and structuring the captive, as well as its premiums, and working out a fronting arrangement with the carriers. Finally O’Donnell works on behalf of the firms to obtain DOL approval when needed.
While O’Donnell has worked on a range of captive deals in various industries, there’s been a great deal of interest as of late expressed by large high-tech firms, he said, adding, “recently high-tech and IT companies seem to have surfaced as some of the big players.”
O’Donnell declined to state which companies Aon is working with to form captives. So far, DOL has approved nearly 30 such transactions, O’Donnell said. “And there are a lot more in the pipeline,” he added.
Aon has dealt with clients in food processing, manufacturing, high-tech and transportation and, according to O’Donnell, when one big player in an industry forms a captive, its competitors tend to follow. “It does seem to run in clusters,” he said.
Adding employee benefits adds advantages to captives, helping diversify risk, and improving a captive’s financial status. And for a company that has its own captive, it’s a way to “possibly capture underwriting gains,” O’Donnell said. “These savings over time can be very, very significant.”
Captives can also be a productive way for a company to use cash, he added.
Aside from the recent surge in captive interest from the high-tech sector, O’Donnell said he’s seen captive business pick up on the heels of sweeping change in the healthcare industry and rising costs in that sector.
“There’s no question it’s picking up,” he said. “High costs of healthcare insurance are driving interest in captives.”
Hawaii Captives
George W. Sumner III, Hawaii’s deputy commissioner and captive insurance administrator, said that while Google’s captive domiciled in Hawaii has been in the limelight lately, “we have had several others that have either applied or are working on writing employee benefits in their captive, so there will be other well-known companies in the limelight around the corner.”
Sumner wouldn’t name names. Since the state got its first captive in 1987, the number of captives in Hawaii has grown to 172 active captives, topping $9 billion in assets as of 2010, according to the Hawaii Department of Commerce & Consumer Affairs. More than 246 captives have been licensed in the state since the 1987, according to the department.
“We pride ourselves in prudent common sense regulation and that has attracted many other great names that I would absolutely love to, but cannot talk about,” Sumner said.
Sumner credited Hawaii’s strong captive environment to existing captive friendly legislation in place for decades.
The state has an initial incorporation fee of $50, an annual business registration fee of $15 and a captive application fee of $1,000. Captive annual license fees range from $300 to $1,000, and taxes on captives’ premiums starts at .25 percent for premiums up to $25 million and drop to .15 percent for premiums $25 million to $50 million, .05 percent for premiums $50 million to $250 million and 0 percent on premiums above $250 million. While there’s no minimum premium tax, the maximum is $200,000.
Existing captives with recognizable names in Hawaii include: Buena Vista Insurance Co., Edison Insurance Services Inc., FUJIFILM Insurance (Hawaii) Inc., Nissan Motor Insurance Corp. and SANYO Global Insurance Inc.
Aside from Aon, other big name captive managers in the state are Chartis Insurance Management Services Inc., Beecher Carlson Insurance Services LLC, Marsh Management Services Inc. and Willis Management (Hawaii) Ltd.
Most of the state’s captives are owned by companies headquartered in the Western United States, with a few from the rest of the country and there are 10 non-U.S. captives. Many of Hawaii’s captives are from the construction/real estate industry (55), with a large number in telecommunications and manufacturing (30), health care (28), retail and other services (23), financial services (18) and transportation/energy (18).
Enhanced Benefits
The request from Google for its captive is that DOL grant an exemption under Section 408(a) of the Employee Retirement Income Security Act of 1974. If granted, the exemption would permit the captive to engage in certain transactions involving reinsurance to the captive of the life, accidental death and dismemberment and long-term disability insurance benefits policy issued by The Prudential Insurance Co. of America, according to Google’s request letter.
The insurance program includes roughly 15,000 of Google’s U.S. employees, which the company covers under an employee welfare benefit plan, according to the letter.
“This exemption for the Proposed Transactions would enable the Plan to provide enhanced benefits, in a cost-effective manner, to those employees whose Life, AD&D, and LTD benefits would be reinsured to the Captive pursuant to the Proposed Transactions,” the letter states.
The captive would enable Google to provide “enhanced benefits to participants” in the plan, according to the letter.
Google spokespersons did not return several calls or emails for comment.
Google released its quarterly earnings in mid-January. Analysts were expecting higher profits for Google. The company’s EPS beat estimates by nearly a dollar in the third quarter, coming in at $9.72.
However, Google’s fourth-quarter earnings gain of 6 percent fell below Wall Street expectations. Analysts were expecting earnings of $10.51 per share on net revenue of $8.43 billion. Google delivered $2.71 billion, or $8.22 per share.
According to the request-for-exemption letter to DOL, the captive Imi was granted a certificate of authority from the Insurance Division of Hawaii on Dec. 15, 2010, and as of Dec. 31, 2010, it had assets of over $30 million.
Google has also retained consulting an actuary firm Milliman Inc. as the captive’s the independent fiduciary.