Photo of Puja Sherwani, HSBC and Novita Indayang, Marsh McLennan.
Nicholas Hardy
Director Asia Pacific Treasury
Marsh & McLennan Companies, Inc (Marsh McLennan) is the largest insurance broker in the world, generating a revenue of US$19.8bn with operations in more than 130 countries and a market capitalisation of US$79bn.
in partnership with
Smart liquidity solution delivers impressive benefits for Marsh McLennan
The challenge
Historically, excess liquidity from Asia was being manually swept to participate in a global multi-currency notional pooling structure in the UK. Manual transfers are inefficient, in addition, funds were managed on a forecasted basis in Asia with residual balances being left in country – all of which meant Marsh McLennan could not fully optimise their cash.
“As part of a new wider global pooling strategy in Marsh McLennan Treasury, to operate more efficiently and automate liquidity management, it was decided to move to a zero-balancing structure with a multi-currency notional pool at the treasury entity level. Asia was identified as the pilot for the zero balancing structure,” explains Nicholas Hardy, Director Asia Pacific Treasury. “This new global pooling strategy also provides the foundations for our future global in-house bank.”
The solution
Working with their international banking partner, HSBC, Marsh McLennan set up a domestic and cross-border cash concentration structure that pooled funds in a central location in Singapore. A multi-currency notional pool sits on top of the cash concentration structure in order to optimise liquidity management within the Asia time zone, eliminating the need for unnecessary FX conversions and maximising the use of company funds to get the most competitive interest outcome.
To achieve this, Marsh McLennan implemented:
- Zero balancing sweeps (including multi-tiered sweeps) from participating accounts in Japan, Hong Kong and Singapore into the accounts of a newly established treasury entity in Singapore to participate in the notional pool. Thirty six entities and 76 accounts participated in this initial set up.
- Intraday limits on the operating accounts to facilitate payment activity.
- A single-entity multi-currency notional pool in Singapore for the Marsh McLennan treasury entity in JPY, HKD, SGD and USD.
- Dynamic intercompany interest rates for all entities/currencies in scope, linked to the pricing on the pool, with automated interest computation and posting. This included handling of withholding tax, where applicable.
- Standardised reporting on balances and intercompany positions that are fed directly into Marsh McLennan’s systems for automated reconciliation.
The solution helps Marsh McLennan automate cross-border cash concentration in the Asia region, with intercompany interest being computed and posted. The company is also able to centralise its cash into Singapore in an efficient manner, allowing them to manage liquidity within Asia hours. With this, Marsh McLennan has maximised the use of internal cash to meet their funding requirements. Liquidity Investment Solutions (LIS) were also explored, which will allow Marsh McLennan to invest excess cash from the pool in Singapore.
Best practice and innovation
Given the regulated nature of Marsh McLennan’s business, unlike a corporate, extensive due diligence needed to be conducted to identify those entities, accounts and balances that could participate.
This is also the first time a single currency umbrella intraday facility for a borrowing group has been set up containing different currency accounts in Asia.
All intercompany interest positions are automatically accrued and posted at rates which reflect the underlying pool rates plus/minus an applicable spread, eliminating the need for Marsh McLennan to undertake this activity manually and allowing them to comply with arms’ length regulatory requirements for intercompany positions. This is combined with a Liquidity Management Dashboard, which provides a reporting tool for real-time visibility of liquidity across all accounts.
Key benefits
- Reduction in surplus cash balances and automation of the centralisation of Group funds.
“As a global business, we partnered with HSBC to establish an automated zero balancing liquidity structure with a multi-currency notional pool at the treasury entity level. This has been proof of concept for our new global pooling strategy to create an effective and scalable tool to support our operations around the world,” states Hardy.
