Coke Proposes Captive Insurer Deal for Benefits

December 22, 2009 ( – Coca-Cola Co. could become the first employer to fund employee benefits through an unusual arrangement involving both an insurance subsidiary and an outside insurance company.

The soft drink giant has asked the Department of Labor’s Employee Benefits Security Administration (EBSA) to approve the plan under which Coca-Cola would use assets now held in its voluntary employees’ beneficiary association (VEBA) to buy medical stop-loss insurance from Prudential Insurance Co. of America. EBSA has issued an initial approval of the proposal.

According to the Coca-Cola proposal, Prudential would use the premiums it receives from soft drink maker to reinsure its risks with Coca-Cola’s insurance subsidiary, Red Re Inc.  The subsidiary’s operations are known as “captive insurance.”

An employer can create a captive insurer as its subsidiary as part of its benefits program and the subsidiary is restricted to writing insurance coverage for the employer and its related companies.

However, employers attempting to go the captive insurer route must first seek EBSA’s permission because, under the Employee Retirement Income Security Act (ERISA), plan sponsors can’t undertake a transaction with a “party in interest.” Without an EBSA exemption to that rule, the employer’s captive insurer generally would be barred from receiving premiums from the employer’s benefit plan.

Under the initial approval, EBSA specified that to the extent Red Re earns any profit due to “favorable claims experience,” such profit will be promptly returned to the retiree health plan.

Written comments and requests for a hearing on the request for an exemption are due by February 5 to the Employee Benefits Security Administration (EBSA), Office of Exemption Determinations, Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 20210. Attention: Application No. D-11556; or by e-mail to; or by fax to (202) 219-0204.

 EBSA’s initial decision on the request is available here.