International Insurance Programs – Challenges in Managing the Regulatory and Tax Regimes

•7/10/2013 •1

Agenda

1. Introduction

2. Developments on IRT matters since FERMA 2011

3. Presentation of Public/Product Liability case study

4. Zurich’s solution

5. AIG’s solution

6. Summing up

7. Nordic Survey

8. General Q&A

9. Summary

7/10/2013 2

Regulatory and Tax Developments

7/10/2013 3

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

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

China – cash before cover

Antigua and Columbia – nonadmitted permitted

Brazil – reinsurance restriction

Argentina – reinsurance restriction

India – compulsory cession reduction

7/10/2013 4

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

7/10/2013 5

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:

“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

7/10/2013 6

Zurich Solution

7/10/2013 7

7/10/2013 8

Building the Picture Start with the foundation

Understand customers risk strategy & footprint

Understand country regulatory & tax

requirements

Overlay customers expectations to propose

suitable solutions

Pricing & Premium Allocation

Consider & propose the best solution options for

the customer

7/10/2013 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 ?

7/10/2013 10

Risk Strategy & Footprint Zurich’s Network Operating in 210 countries

Singapore

Hong Kong Bahrain

Zurich presence Market Leading Partners

7/10/2013 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? Claim payment? Negotiation? Risk coverage?

Risk engineering? Loss adjustment? Premium payment?

Zurich has the information not only for “risk coverage” but for a variety of other insurance activities in our Zurich MIA tool.

7/10/2013 12

Regulatory Requirements Helping you take control in a constantly changing world

Dedicated Legal

Department managing

150+ Law Firms

Data for 180+

Jurisdictions

Per 41 Lines of

Business

Per 5 Business

Scenarios

Variations on:

• Risk Engineering

• Premium Payment

• Loss Adjusting

• Claim Payment

Zurich’s Multinational Insurance Application Visit www.Zurichmia.com for more information

7/10/2013 13

Tax Requirements Helping you take control in a constantly changing world

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

Invoicing & disbursement of taxes relating to allocated premium for Out-of-Territory

exposures is important

7/10/2013 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

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Illustrative purposes only

Locations with large sales income may

require different levels of protection

Manufacturing / Sales / R&D sites drive

different service requirements / coverage

7/10/2013 15

Understanding Experience Using history to create a sustainable future

0

10

20

30

40

50

0

5

10

15

20

25

2009 2010 2011 2012 2013

Val

ue

(Eu

ro m

)

Nu

mb

er

Germany

No. Claims Claims Value

0

5

10

15

20

25

30

35

0

10

20

30

40

2009 2010 2011 2012 2013V

alu

e (E

uro

m)

Nu

mb

er

UK

No. Claims Claims Value

0

5

10

15

20

25

30

0

20

40

60

80

2009 2010 2011 2012 2013

Val

ue

(Eu

ro m

)

Nu

mb

er

USA

No. Claims Claims Value

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

7/10/2013 16

Pricing & Premium Allocation Ensuring fair and reasonable premiums

We now understand the

regulatory & tax

requirements

We now understand the

customers expectations

& requirements

We now understand the

customer risk strategy &

footprint

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

France No

Spain No

Italy No

Sweden Yes

China No

Thailand Yes

Japan No

Brazil No

Chile Yes

Canada Certain provinces*

USA No

Botswana Yes

South Africa Yes

Russia No

Switzerland No

* Excluding Alberta, British Columbia & Manitoba

7/10/2013 17

Program Structure Proposing one suitable solution

DE FR, IT, ES, SE

FOS Ground Up

Propose LP in UK due to

high sales volumes &

claims experience

FOS Ground Up removing

need for local policies

LP satisfies need for local

proof of insurance

* JV Japan considerations

FInC layer to insure solely parent’s

insurable interest under the Master

(because DIC/DIL not permitted)

DIC / DIL where permitted

UK

FOS

TH

DIC /

DIL

CA

DIC /

DIL

US

DIC /

DIL

JP*

FInC

BR

FInC

RU

FInC

CH

FInC

CN

FInC

CL BW SA

Non-admitted ground up

cover removing need for

local policies

Option for non-admitted

ground up cover but

restrictions on RE and

claims activities

7/10/2013 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

AIG Solution

7/10/2013 19

‘International’ is our middle name AIG has over 90 years of experience and has the largest owned network of any multinational insurance provider.

7/10/2013 20

1919 Started in China

1948 Global expansion

continues by entering

France, Mexico and

Singapore

1939 Company HQ relocates

from China to New York

1925 New branches open in

Hong Kong, Vietnam

and Philippines

1951 AIU establishes its

Middle Eastern

operation in Lebanon

1946 New AIU offices in

Japan and Germany

1953 UK office opens

1961 A&H division

established

1966 The company begins

writing D&O

1973 AIG enter Sweden

1977 AIG establishes a

JV in Egypt

1979 AIG forms JV operations

with eastern European

insurers in Hungary,

Poland and Romania

1980 Pollution liability

program is introduced

1990 AIG obtains China’s first

foreign insurance license

1994 Enter Russia

1997 AIG launches

microinsurance

operations in Uganda

2001 Tata and AIG form

a JV in India

• Multinational is at our Core

• Global network spans over 200 countries

• Largest owned network, in over 90 countries

• 63,000 AIG employees

• Expertise on the ground in the countries

where we hold licenses

• A presence of over 25 years in 70% of the

countries where we have licenses

1949 AIU opens in Brazil

1957 AIU opens in Australia

2013 AIG obtains Passport for

Croatia 2013

AIG opens 6th branch in

China

2005 AIG receives a general

insurance license in

Vietnam

1962 South Africa opens

A Philosophy of Partnership

7/10/2013 21

Exposure

Evaluation

Proof of

Insurance

Exposure

Evaluation

Proof of

Insurance

Exposure Evaluation

• What products/services do you provide?

• 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?

The greater the exposures, the greater the need for local insurance

protection

Coverage

• Are there particular insurance terms

needed locally?

• Are the necessary terms and

conditions available only under a

local policy?

A global policy for local risks

Coverage

Claims

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?

A multinational’s regulatory and premium tax requirements

Compliance

Tax & Capital

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?

Satisfying local authorities

Proof of

Insurance

Exposure

Evaluation

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?

The need to respond locally

Claims

Coverage

Corporate Tax

• Will the claim need to be paid in-

country?

• 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?

Tax liability and capital

Tax & Capital

Compliance

A Philosophy of Partnership

7/10/2013 28

Programme Design Tool

‘Premium Allocation’

Considerations

7/10/2013 29

BRAZIL

Locally rated.

Strict local reinsurance

requirements exist.

CHINA

Tariff / filed rates exist.

Cash before Cover in

some provinces.

CANADA

Local Tax requirements

exist.

Local payment conditions

apply.

GERMANY

As the Master, will be

responsible for FOS tax

collection

KEY PRINCIPLES

•Fair and reasonable

•Subject to local constraints

•Timing is of essence

FR

– F

OS

BW

– N

on

Ad

mitte

d

BW

– N

on

Ad

mitte

d

BW

– N

on

Ad

mitte

d

Structure Proposal

7/10/2013 30

CL

– L

ocal

IT –

Lo

cal

ES

– L

ocal

SE

– L

ocal

BW

– L

ocal

UK

– L

ocal

BR

– L

ocal

RU

– L

ocal

CN

– L

ocal

JP

– L

ocal

TH

– L

ocal

SA

– L

ocal

CH

– L

ocal

US

– L

ocal

CA

– L

ocal

Master Limit

BOTSWANA

Very low exposures +

no claims

BW

– N

on

Ad

mitte

d

CL

– N

on

Ad

mitte

d

BR

– L

ocal

CA

– L

ocal

CN

– L

ocal

FR

– L

ocal

FR

- FO

S

IT - F

OS

ES

- FO

S

SE

- FO

S

CHILE / SOUTH

AFRICA

Very low exposures + no

claims

Non Admitted Permitted

UK

- FO

S

JP

– L

ocal

RU

– L

ocal

CH

– L

ocal

TH

– L

ocal

USA

High exposures + high

claims volume = Local

Policy with higher policy limit

The Customer’s

request for minimum

policies

Local Limits

requirements

JAPAN

Local certificates required, hence local

policy with adequate limit

SA

– N

on

Ad

mitte

d

FOS?

FR, IT, ES, SE and UK

STRUCTURE PROPOSAL

• 8 Local Policies, all via AIG offices

• Local limits to suit the customers requirements

• 5 Territories covered via FOS

• 3 Territories covered Non Admitted

AIG Multinational Facts and Figures

9000 Claims

personnel

worldwide

In over 90 countries

$65.7bn

AIG global revenue in 2012

26%

EMEA Employees

Growth of new multinational programs

98% Fortune 500

companies AIG serves

Over

7,400

$6bn

AIG EMEA revenue in 2012

43 EMEA

owned offices

EMEA $6BN NPW

Commercial 72%

Consumer 28%

CASE STUDY SUMMARY

7/10/2013 32

7/10/2013 33

Nordic Survey Results

7/10/2013 34

Fully Agree

Almost Agree

Partly Agree

Not Agree

7/10/2013 35

Fully Agree

Almost Agree

Partly Agree

Not Agree

7/10/2013 36

Fully Agree

Almost Agree

Partly Agree

Not Agree

7/10/2013 37

7/10/2013 38

Fully Agree

Almost Agree

Partly Agree

Almost Agree

Partly Agree

Not Agree

7/10/2013 39

Fully Agree

Almost Agree

Partly Agree

Not Agree

Questions & Answers

Seminar conclusions

7/10/2013 40

Disclaimers

7/10/2013 41

Marsh Ltd

This PowerPoint™ presentation is based on sources we believe reliable and should be understood to be general risk management and insurance information only.

Statements concerning tax, accounting, and legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and

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

legal advisors in these areas.

Depending upon an organisation's facts and circumstances, certain tax or accounting benefits may be associated with this product. Organisations should consult with their tax, accounting,

and legal advisors to determine whether such benefits would be applicable.

Registered in England and Wales Number: 1507274, Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU

In the United Kingdom Marsh Ltd is authorised and regulated by the Financial Conduct Authority for insurance mediation activities only. Marsh Ltd conducts its general insurance activities on

terms that are set out in the document "Our Business Principles and Practices". This may be viewed on our website

http://uk.marsh.com/AboutUs/AboutMarsh/articleType/ArticleView/articleId/2375/Governance.aspx

© Copyright 2013 Marsh Ltd 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.

Zurich Legal Notice:

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

Insurance Group Ltd, as in the US, Zurich American Insurance Company, 1400 American Lane, Schaumburg, IL 60196, in Canada, Zurich Insurance Company Ltd, 400 University Ave.,

Toronto, ON M5G 1S9, and outside the US and Canada, Zurich Insurance Plc, Ballsbridge Park, Dublin 4, Ireland, Zurich Insurance Company Ltd, Mythenquai 2, 8002 Zurich, Zurich

Australian Insurance Limited, 5 Blue St., North Sydney, NSW 2060 and further entities, as required by local jurisdiction.