Global programmes facing increasing regulation and IPT compliance

Claire McDonald, global practice leader – international insurance solutions, Allianz Global Corporate & Specialty (AGCS), pointed to a number of areas where there was increased regulation.

First, she said they more countries are looking at cash before cover. “Sometimes it can be quite difficult to ascertain whether or not it is a truly cash before cover country or whether it is just a preference for that country. One of the challenges that we have is trying to get some commonality between ourselves, the brokers and the clients about which countries are truly cash before cover,” she said. “We are also increasingly seeing obligations around Know Your Customer (KYC), not just at the lead office or head office level, but also at the local level.”

She noted it was a similar situation with sanctions, where it is not just about sanctions at the parent company level but also checking the customer at the level of all of the individual territories.

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Finally she looked at tariffs, noting that there are more and more countries looking to impose tariffs, the latest one being Russia which is looking to impose a tariff from January 1, 2017. She explained that for each line of business there is now a minimum pricing tariff. If, for example, there is a liability cover that may be a component part of public liability, employers’ liability, or product liability, then there is a minimum rate for each component.

Pieter Nyssen, global fronting manager benelux, AIG, said that with increasing regulation, it was critical to have the timing correct and the policy must be issued at inception. For example, he noted, in Russia, the policy only incepts when it has been signed by all parties.

He said most countries allow 100% exportability of premiums but in certain countries there are restrictions. There are local compulsory retentions, for example in China, Russia and Argentina, and there is local compulsory reinsurance such as in Brazil, India and Russia. He noted that the latter is in the process of establishing a state reinsurance company and there will be an obligation to cede 10% of reinsurance to the state company. And, finally, he said there is the question of cash flow, for example in Argentina and Venezuela where there are issues about currency convertibility.

India and Brazil

AGCS’ Claire McDonald looked at the situation in India and said that over the course of 2016, India has been trying to put in place a ‘waterfall reinsurance’ approach, which she said was “a challenge to those of us trying to reinsure captives and clients in India. However, since a number of reinsurers that submitted for licences have not had them approved, the market is not in a mature state to be able to roll out what they were hoping to achieve.”

She explained that previously there was a cession of 5% to GIC India, but in future there will be a shared approach with GIC getting first choice followed by a series of Tier 1-4 reinsurers.

“As you can imagine, this is not something we are particularly looking forward in terms of tying to work out exactly what this will mean for clients, and how much of the risk will we be able to bring back, and how workable this is as a system,” she said. “So for India it is a case of ‘watch this space’ and keep up to date if you have exposures in India as to what that might mean for your renewal.”

She said that there were similar issues in Brazil. “You are never entirely sure what the rules are going to be in Brazil. It is one of the most challenging countries in which to have a subsidiary and to comply with the regulations and the accounting and cessions concepts, makes it extremely difficult for us to have some certainty with our customers over what the next 12 months brings,” she said.

Ms McDonald said Africa does have its challenges in terms of having a wide network and having the right companies that can produce the paper for you there, and having a reliability of service. And finally, she said Russia remains one of the more complex countries. “The combination of the tariff and the new state reinsurer is one aspect that we will have to pay some attention to next year to make sure that we get it right,” she told the conference.

Insurance Premium Tax

The number of enquiries from multinational policyholders, with or without a captive, about Insurance Premium Tax (IPT) has doubled this year, according to Tom Hilverkus, IPT Lead, Ernst & Young. “They are worried about their obligations, especially in non-admitted scenarios, and they are worried about secondary liabilities as in many countries the policyholder can be held liable if the insurer doesn’t settle. This is all very important and is now very much on the agenda of the C-suite of multinationals,” he said.

He noted that with IPT, the authorities have become much more pro-active over the years, and have been doubling the size of their teams, as well as there being much more collaboration. There have been lots of increases in IPT in Europe, and there have also been a lot of court cases over the scope of these taxes, he said.

Clive Hassett, director of multinational services and head of captive fronting – Europe at Chubb, said compliance is something that is ongoing and increasing. “From the perspective of our clients, there is more of a push to put compliance on the agenda and it is one of the key discussion points when it comes to putting fronting procedures in place,” he said.

“It is encouraging over the last few years that we have seen the demand for quality of service from fronting insurers jumping up the agenda. It is good, as an insurer, to be challenged on this, to be pushed, as I think in the past insurers may not have been as professional in this area as we could have been, but I think that some giant steps have been made,” he told the conference.

And he concluded that the leading global insurers were not interested in competing on compliance. “We often hear from brokers and clients that insurers all say something different when asked about global programmes, but the question that is asked is often not exactly the same. I don’t think any of the leading global insurers see any benefit whatsoever in competing on terms of compliance and regulation,” he said.