1. International
Insurance
Programs –
Challenges in
Managing the
Regulatory and Tax
Regimes
•7/10/2013
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2. Agenda
1.
2.
3.
4.
5.
6.
7.
8.
9.
Introduction
Developments on IRT matters since FERMA 2011
Presentation of Public/Product Liability case study
Zurich’s solution
AIG’s solution
Summing up
Nordic Survey
General Q&A
Summary
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2

3. Regulatory and Tax Developments
 Increased demand by risk mangers for greater
compliance
 Increase in regulatory scrutiny
 Changes in insurance regulations
 Increased levels of tax audits
 Changes in tax rates
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4. Regulations
 Increase scrutiny by regulators
 IAIS – Multilateral Memorandum of Understanding
 Bilateral Memorandum of Understanding
 Brazil – Fine imposed on life insurer: US$6.2 billion
 Changes in insurance regulations





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China – cash before cover
Antigua and Columbia – nonadmitted permitted
Brazil – reinsurance restriction
Argentina – reinsurance restriction
India – compulsory cession reduction
4

5. Taxation
 Increase audits by tax authorities
 Proactive audits being conducted on premium related taxes
 Mainly in the EU, USA, Canada and NZ
 Increase in premium tax rates
 Australia, EU, Canada, Guatemala, India, Malaysia, Zambia
 Changes in the tax law in Germany
 Other tax developments
 Foreign Account Tax Compliance Act (“FATCA”) in the USA
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5

6. Case Study: Liability – Facts
 German Manufacturing Group




Group turnover/sales - €20 billion
Operations in EU/Europe, Asia, Latin & North America, Africa
Largest operation in EU, China, Russia and the USA
Significant frequency and severity claims history
 Risk manager’s wishes:




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“100% compliance”
Certificate requirements in Japan and USA only
Local policies to be kept to a minimum
Total premiums to recharged to all entities in the group
6

7. Zurich Solution
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8. Building the Picture
Start with the foundation
Understand customers
risk strategy & footprint
Consider & propose the
best solution options for
the customer
Pricing & Premium
Allocation
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Understand country
regulatory & tax
requirements
Overlay customers
expectations to propose
suitable solutions
8

9. Risk Strategy & Footprint
Understanding your risk and locations
What is the customers Risk Management Strategy ?
How is the customer structured ?
What are the risks associated with their business ?
How much risk does the customer want to retain ?
What needs and service requirements does the customer
have ?
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10. Risk Strategy & Footprint
Zurich’s Network Operating in 210 countries
Hong Kong
Bahrain
Singapore
Zurich presence
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Market Leading Partners
10

11. Regulatory Requirements
Helping you take control in a constantly changing world
Customers expect their international programs to satisfy multiple requirements
For local regulation we need to understand what is conduct of insurance.
So what does Conduct of Insurance mean?
The answer varies country by country!
Marketing?
Negotiation?
Loss adjustment?
Claim payment?
Risk engineering?
Risk coverage?
Premium payment?
Zurich has the information not only for “risk coverage” but for a variety of other
insurance activities in our Zurich MIA tool.
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11

12. Regulatory Requirements
Helping you take control in a constantly changing world
Zurich’s Multinational Insurance Application
Data for 180+
Jurisdictions
Visit www.Zurichmia.com for more information
Per 41 Lines of
Business
Per 5 Business
Scenarios
Variations on:
• Risk Engineering
• Premium Payment
• Loss Adjusting
• Claim Payment
Dedicated Legal
Department managing
150+ Law Firms
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12

13. Tax Requirements
Helping you take control in a constantly changing world
Invoicing & disbursement of taxes relating to allocated premium for Out-of-Territory
exposures is important
MIA provides details on
Out-of-Territory and
applicable FOS taxes.
Our Underwriters, by
using MIA, can ensure
that Out-of-Territory
taxes are accounted for
and disbursed – (add
tax report)
Zurich has tax
representatives globally
to ensure out of territory
taxes are properly
handled
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13

14. Understanding Exposure
Overlaying the customers operations to provide solutions
Understanding the legal and tax situation in a country tells one part of the story
Overlaying the customers expectations allows us to propose appropriate solutions
7.00
6.00
5.00
Locations with large sales income may
require different levels of protection
Manufacturing / Sales / R&D sites drive
different service requirements / coverage
4.00
3.00
2.00
1.00
0.00
Illustrative purposes only
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15. Understanding Experience
Using history to create a sustainable future
Allows the program structure to respond to any trends that may be visible
Identify opportunities for risk engineering activities and improvement actions
Examples :
Country with high exposure (sales), claims frequency and severity may prompt local
loss adjusting requirements, guarantee of local claims payments, potential need for
risk engineering support
Country with low exposure (sales), claims frequency and severity may lead to a
different conclusion on most appropriate solution
UK
20
5
10
0
0
2009 2010 2011 2012 2013
No. Claims
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Claims Value
20
10
0
2009 2010 2011 2012 2013
No. Claims
Claims Value
80
30
25
60
20
40
15
10
20
5
0
0
2009 2010 2011 2012 2013
No. Claims
Claims Value
15
Value (Euro m)
10
30
Number
30
35
30
25
20
15
10
5
0
Number
40
15
40
Value (Euro m)
50
20
Number
25
USA
Value (Euro m)
Germany

16. Pricing & Premium Allocation
Ensuring fair and reasonable premiums
We now understand the
customer risk strategy &
footprint
We now understand the
regulatory & tax
requirements
We now understand the
customers expectations
& requirements
The premium must be allocated to each of the countries exposures in a fair and
reasonable manner ensuring it is risk adequate
Additional requirement of the customer to have all premiums reimbursed by the local
entities can now be considered
Is this legally possible on non admitted cover ?
UK
Yes
Thailand
Yes
Botswana
Yes
France
No
Japan
No
South Africa
Yes
Spain
No
Brazil
No
Russia
No
Italy
No
Chile
Yes
Switzerland
No
Sweden
Yes
Canada
Certain provinces*
China
No
USA
No
* Excluding Alberta, British Columbia & Manitoba
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16

17. Program Structure
Proposing one suitable solution
Propose LP in UK due to
high sales volumes &
claims experience
LP satisfies need for local
proof of insurance
* JV Japan considerations
DIC / DIL where permitted
FInC layer to insure solely parent’s
insurable interest under the Master
(because DIC/DIL not permitted)
FOS
DIC /
DIL
DIC /
DIL
DIC /
DIL
FInC
FInC
FInC
FInC
FInC
UK
TH
CA
US
JP*
BR
RU
CH
CN
FOS Ground Up
DE
FR, IT, ES, SE
FOS Ground Up removing
need for local policies
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Option for non-admitted
ground up cover but
restrictions on RE and
claims activities
CL
BW
SA
Non-admitted ground up
cover removing need for
local policies
17

18. Summary Notes
Advantages of proposed program structure :
Transparent, integrated multinational insurance structure
Local claims and other servicing needs can be met
International insurance solution in best possible alignment with local
regulatory & tax requirements
Considerations:
Local policy versus providing central cover into “non-admitted permitted”
countries
Providing cover for the adequate interest of the customer
(local exposures- vs. central balance sheet protection)
Premium reimbursement
Costs
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19. AIG Solution
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20. ‘International’ is our middle name
AIG has over 90 years of experience and has the largest
owned network of any multinational insurance provider.
1961
1979
2013
A&H division Multinational is1953 AIG forms JV operations
•AIG obtains Passport1973
at our Core
for
2013
established
1994 opens1990 in
European
UK office opens200 countries AIG
CroatiaAIG enter with easternAIG obtains China’s first
• Global network spans overSweden
6 branch
1946
Enter Russia
insurers in Hungary,insurance license
1939 owned network, in over 90 countries in China
foreign
• Largest
New AIU offices
Poland and Romania
1951 Germany
Company HQ relocates
1919
Japan and
• 63,000 AIG employees
1977
from China to New York
AIU establishes its
2001 in China
Started
• Expertise on the ground in the Eastern
countries
Middle
establishes
1949 AIGJV in 1997a and AIG form
Tata
where we hold licenses Egyptin Lebanon
1925
operation
a JV in India
AIU opens in Brazil
of over AIG launches
1980 • A presence 194825 years in 70% of the branches open in
New
countries where we microinsurance Hong Kong, Vietnam
have licenses
Pollution liability
Global expansion
operations in Uganda and Philippines
program is introduced
19622005 1957
continues by entering
AIU opens in Australia
South
France, Mexico and Africa opens
1966
AIG receives a general
Singapore
th
insurance license in
The company begins
VietnamD&O
writing
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20

21. A Philosophy of Partnership
Exposure
Evaluation
Proof of
Insurance
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22. Exposure Evaluation
The greater the exposures, the greater the need for local insurance
protection
• What products/services do you provide?
Exposure
Evaluation
• What type of physical presence do you
have?
• What is your company structure/capital
position?
• What lines of Insurance are you
considering?
• What contractual counterparties do you
have?
Proof of
Insurance

23. Coverage
A global policy for local risks
Coverage
• Are there particular insurance terms
needed locally?
• Are the necessary terms and
conditions available only under a
local policy?
Claims

24. Compliance
A multinational’s regulatory and premium tax requirements
Compliance
• Does local law require the local
subsidiary to purchase and/or be
covered by insurance from a locally
licensed carrier?
• Does local law prohibit the local
subsidiary from purchasing and/or
being covered by insurance from a
carrier not locally licensed?
• Will the parent need to settle and
pay premium tax in the local
subsidiary’s country?
Tax & Capital

25. Proof of Insurance
Satisfying local authorities
Proof of
Insurance
• Are local operations required to
obtain insurance from locally
licensed carriers?
• Does a contractual counterparty or
government entity need to be shown
evidence that coverage has been
obtained locally?
• Will failure to provide evidence of
locally obtained insurance breach
contractual covenants or trigger any
commercial, contractual or
reputational consequences?
Exposure
Evaluation

26. Claims
The need to respond locally
Claims
• Can the local subsidiary retain local
counsel to defend a lawsuit?
• Will the subsidiary be able to retain
loss control experts, engineers and
medical providers to assist in the
claim adjusting process?
• Will the subsidiary be able to retain
investigators, search for
beneficiaries, or arrange for housing
or other accommodations in the
wake of a loss?
• Will the subsidiary be able to
arrange for immediate medical
treatment and evacuation?
Coverage

27. Corporate Tax
Tax liability and capital
Tax & Capital
• Will the claim need to be paid incountry?
• If the global policy cannot respond
by paying the claim locally and must
instead pay the parent company, will
the parent incur tax liability in its
home country?
• Will the parent need to make a
capital contribution to the local
subsidiary; if so, will the local
subsidiary incur tax liability?
• Can the local operation survive if the
parent does not infuse capital to
make it whole for a loss?
Compliance

28. A Philosophy of Partnership
Programme Design Tool
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29. ‘Premium Allocation’
Considerations
KEY PRINCIPLES
•Fair and reasonable
•Subject to local constraints
CHINA
Tariff / filed rates exist.
Cash before Cover in
some provinces.
•Timing is of essence
CANADA
Local Tax requirements
exist.
Local payment conditions
apply.
BRAZIL
Locally rated.
Strict local reinsurance
requirements exist.
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GERMANY
As the Master, will be
responsible for FOS tax
collection
29

30. Structure Proposal
JAPAN
Local certificates required, hence local
policy with adequate limit
Master Limit
The Customer’s
request for minimum
Local Limits
requirements
policies
Non Admitted
US – Local
CHILE / SOUTH
• 5 Territories covered via FOS
UK – Local
UK - FOS
TH – Local – Local
TH
CH – Local – Local
CH
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SE – Local
SE - FOS
• Local limits to suit the customers requirements
AFRICA
• 3 low exposures + no
Very Territories covered
claims
FOS?
Non Admitted Permitted
FR, IT, ES, SE and UK
BOTSWANA
Very low exposures +
no claims
ES – Local
ES - FOS
SA – – Non Admitted
SA Local
RU – Local – Local
RU
JP – JP – Local
Local
IT –IT - FOS
Local
• 8 Local Policies, all via AIG offices
FR – Local
FR – FOS
FR - FOS
CNCNLocal
– – Local
CL – Local
CL – Non Admitted
CA – Local
CA – Local
BR – Local – Local
BR
BW BW Non Admitted
BW NonLocal
– – – Non Admitted
BW – Non Admitted
BW – Admitted
STRUCTURE PROPOSAL
USA
High exposures + high
claims volume = Local
Policy with higher policy limit
30

31. AIG Multinational
Facts and Figures
$65.7bn
In over 90 countries
98%
Fortune 500
companies AIG serves
AIG global revenue in 2012
$6bn
AIG EMEA revenue in 2012
EMEA $6BN NPW
Commercial 72%
Consumer 28%
Over
7,400
43 EMEA
owned offices
EMEA Employees
9000
Claims
personnel
worldwide
26
%
Growth of new multinational programs

32. CASE STUDY SUMMARY
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33. Nordic Survey Results
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34. Fully
Agree
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Almost
Agree
Partly
Agree
Not
Agree
34

35. Fully Agree
Almost Agree
Partly Agree
Not Agree
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35

36. Fully
Agree
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Almost
Agree
Partly
Agree
Not
Agree
36

37. 7/10/2013
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38. Fully Agree
Almost Agree
Almost Agree
Partly Agree
Partly Agree
Not Agree
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38

39. Fully Agree
Almost Agree
Partly Agree
Not Agree
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39

40. Questions & Answers
Seminar conclusions
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41. Disclaimers
Marsh Ltd
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should not be relied upon as tax, accounting, or legal advice, which we are not authorised to provide. All such matters should be reviewed with the client’s own qualified tax, accounting, and
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All rights reserved
AIG
For additional information, please visit our website at www.aig.com. Products and services are written or provided by subsidiaries or affiliates of American International Group, Inc. In
Europe, the principal insurance provider is AIG Europe Limited. This material is for information purposes. Not all products and services are available in every jurisdiction, and insurance
coverage is governed by the actual terms & conditions of insurance set out in the policy or in the insurance contract. Certain products and services may be provided by independent third
parties. Insurance products may be distributed through affiliated or unaffiliated entities.
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The information in this publication is compiled from sources believed to be reliable and for informational purposes only. Any and all information contained herein is not intended to constitute
advice (particularly not legal advice) and Zurich do not guarantee the accuracy of this information and further assume no liability in connection with this publication. This is a general
description of insurance service concepts and does not represent or alter any insurance policy. Such services are provided to qualified customers by affiliated companies of the Zurich
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