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FORUM 2013 International insurance programs challenges in managing the regulatory and tax regimes

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Published on February 18, 2014

Author: FermaForum

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International Insurance Programs – Challenges in Managing the Regulatory and Tax Regimes •7/10/2013 •1

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 7/10/2013 2

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 7/10/2013 3

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      7/10/2013 China – cash before cover Antigua and Columbia – nonadmitted permitted Brazil – reinsurance restriction Argentina – reinsurance restriction India – compulsory cession reduction 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:     7/10/2013 “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

Zurich Solution 7/10/2013 7

Building the Picture Start with the foundation Understand customers risk strategy & footprint Consider & propose the best solution options for the customer Pricing & Premium Allocation 7/10/2013 Understand country regulatory & tax requirements Overlay customers expectations to propose suitable solutions 8

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 9

Risk Strategy & Footprint Zurich’s Network Operating in 210 countries Hong Kong Bahrain Singapore Zurich presence 7/10/2013 Market Leading Partners 10

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. 7/10/2013 11

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 7/10/2013 12

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 7/10/2013 13

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 7/10/2013 14

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 7/10/2013 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

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 7/10/2013 16

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 7/10/2013 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

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 7/10/2013 18

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. 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 7/10/2013 20

A Philosophy of Partnership Exposure Evaluation Proof of Insurance 7/10/2013 21

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

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

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

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

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

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

A Philosophy of Partnership Programme Design Tool 7/10/2013 28

‘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. 7/10/2013 GERMANY As the Master, will be responsible for FOS tax collection 29

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 7/10/2013 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

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

CASE STUDY SUMMARY 7/10/2013 32

Nordic Survey Results 7/10/2013 33

Fully Agree 7/10/2013 Almost Agree Partly Agree Not Agree 34

Fully Agree Almost Agree Partly Agree Not Agree 7/10/2013 35

Fully Agree 7/10/2013 Almost Agree Partly Agree Not Agree 36

7/10/2013 37

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

Fully Agree Almost Agree Partly Agree Not Agree 7/10/2013 39

Questions & Answers Seminar conclusions 7/10/2013 40

Disclaimers 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. 7/10/2013 41

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