Tax and regulatory news

Myanmar market opening expected in one to two years Myanmar's Deputy Minister of Finance H.E. Dr Maung Maung Thein recently told Clyde & Co partner Michael Horn that, while foreign insurers can expect the Myanmar market to stay closed to them in the near term, the prospect for market opening lies not too far off in the future. Michael Horn, a partner at Clyde & Co Clasis Singapore, was in Myanmar's capital Nay Pyi Daw to discuss insurance developments with Dr Thein. Describing Myanmar's new domestic holders of 12 recently-issued insurance licenses as "babies, only two or three months old," the Minister revealed that the Government will "nurture them for one to two years" before foreign entrants will be allowed. Clyde & Co said this was the most definitive guidance received by them on this question after frequent consultation with the authorities. Dr Thein confirmed that foreign insurers are already allowed to enter into strategic alliances with local insurers to provide for matters such as training and consultation, anticipating the day when joint ventures will be allowed. Insurance Business Supervisory Board (IBSB) approval must be obtained through the Ministry of Finance. Clyde & Co said this confirmation is consistent with the findings from its consultation with the IBSB and State monopoly insurance provider Myanma Insurance.hideDr Thein also revealed that the Ministry of Finance is planning to establish a stand-alone State-owned reinsurance unit providing capacity to all of the 12 new license holders. Clyde & Co first suggested this idea to the IBSB during meetings earlier this year. The Ministry is evaluating a policy of 30% compulsory reinsurance to this State reinsurer, with the domestic insurers free to place the 70% balance with foreign insurers. Acknowledging that the State reinsurer would take time to establish, Dr Thein also discussed with Clyde & Co the possibility that Myanma Insurance (historically, the country's only insurer) will enter into a new treaty with the 12 domestic insurers, again with 30% compulsory cession to Myanma Insurance and the 70% balance placed with foreign insurers. Dr Thein noted that the 12 new license holders are too for the Government to permit them to immediately access the private reinsurance market. Dr Thein, a lawyer with an insurance background, asked Clyde & Co to convey his Government's message of encouragement to foreign companies seeking to build relationships with their local counterparts, a process he suggested is more advanced in the insurance sector than many other sectors. Dr Thein noted that insurance liberalisation is one of the country's recent successes, along with the establishment of an independent central bank and exchange rate unification. Mr Horn said that as an experienced insurance lawyer, Dr Thein recognises that domestic insurers will benefit from policies that balance nurturing by Government with progressive engagement with foreign insurers to access their experience. Croatia prepares for insurer privatisation Reuters has reported that the Croatian finance ministry has drawn up a shortlist of trade buyers in the privatisation of the country's biggest insurer. Croatia has invited investors to express interest in acquiring a stake of about 50% in insurer Croatia Osiguranje. For the Croatia Osiguranje stake, it will propose shortlisting Poland's state insurer PZU and local tobacco and tourist group Adris, which has said it wants to expand into the insurance sector, according to Reuters. Croatia Osiguranje is the biggest local insurer with a market share of around 35%, and the government owns about 80% of the company. Lockton launches online compliance tool Lockton has launched a new online system called Lockton Compass "to help finance executives and risk managers take a significant step forward in understanding global insurance compliance." Lockton Compass helps clients navigate the confusing array of laws and regulations when creating a global insurance programme, said the broker. Lockton Compass provides its client companies with a specific compliance analysis for their exposures and insurance programme details. "The Lockton Compass analysis tool makes it easier for risk managers and finance executives to identify errors and gaps, avoiding costly fines and penalties. Most typical compliance tools only provide general information on insurance requirements and regulations country by country. Lockton Compass allows users to audit their compliance effort," said Lockton. Lockton said it has worked closely with Axco for the past two years to develop Lockton Compass, an online platform for assessing global insurance compliance. "In an environment where insurance compliance is one of the foremost concerns among multinational risk management professionals, Lockton recognised the need for additional compliance assessment tools," said Maggie Moore, an executive with Lockton's global client services team. "This collaboration with Axco helps companies improve compliance, creating a meaningful solution to one of the industry's most vexing issues. It will help multinational companies run their risk management programmes more effectively and efficiently." Lockton said that compliance data is linked in real-time to Axco's industry standard database for insurance compliance, "so executives can have confidence that they are basing decisions on the latest available information. The summary reports available through Lockton clearly identify and explain gaps or inconsistencies in compliance by country, by line of coverage." IPT and VAT changes A new earlier deadline of the 20th day following each month will apply for all taxable premiums due in Belgium on or after November 1 2013. The new deadline of December 20 2013 will apply for the reporting and payment of Insurance Premium Tax for November. If the 20th day falls on a bank holiday or weekend the deadline is postponed to the next working day. The proposed increase in the Italian standard rate of VAT has come into effect. From October 1 2013 the rate was 22%, an increase of 1%. This change was postponed from July 1, but the Italian government ensured it was approved this time. (Fiscal Reps) IAIS publishes ComFrame consultation The International Association of Insurance Supervisors (IAIS) has released the 2013 draft of the Common Framework for the Supervision of Internationally Active Insurance Groups, or ComFrame, for public consultation. It also adopted an enhanced framework to help guide and increase its efforts to assist Members implement IAIS standards and released its first Self-Assessment and Peer Review (SAPR) aggregate report. The ComFrame consultation marks the next step in its three-year Development Phase. Supervisors, insurers and other interested parties are encouraged to submit comments by December 16. IAIS said that ComFrame is a set of international supervisory requirements focusing on the effective group-wide supervision of internationally active insurance groups (IAIGs). ComFrame is built and expands upon the high level requirements and guidance currently set out in the IAIS Insurance Core Principles (ICPs), which generally apply on both a legal entity and group-wide level. For more information on ComFrame, including the global insurance capital standard, or on how to submit comments, go to www.iaisweb.org. NOTE: The IAIS has also released an aggregate report containing the findings from two SAPRs conducted on ICPs 1 (Objectives, Powers and Responsibilities of the Supervisor), 2 (Supervisor) and 23 (Group-Wide Supervision). Observance of ICPs 1 and 2 is high, but many supervisors found certain standards under ICP 2 difficult to fully observe. Observance of ICP 23 was found to be a work in progress for a number of supervisors. As a result of recommendations from the team that conducted the SAPR on ICP 23, the IAIS established a Task Force to review and identify improvements. Germany sees changes to IPT from start of 2014 Two important changes to Insurance Premium Tax (IPT) will soon take place in Germany on January 1 2014, according to Fiscal Reps. Firstly, for all premiums due after December 31 2013, the premium invoice must include the IPT amount, the IPT rate, and the insurer's German Tax ID. If insurance premiums are exempt from the tax, the tax exemption must be stated. In the absence of an invoice, the tax amounts must be shown in another document which created the insurance relationship. Also with effect from January 1, 2014 the scope of IPT in Germany will be expanded to include insured risks lying within Germany's Exclusive Economic Zone (EEZ). The German EEZ is the area of the North Sea and Baltic Sea lying seaward of the 12 mile zone and extending maximally to 200 nautical miles from the coastline or, if nearer, to the EEZ of neighbouring states. In contrast with the current rules, next year's change means that German IPT will apply to policies on taxable risks located within the EEZ, such as oil installations and wind farms. Therefore, insurers will need to consider the impact of such additional costs for existing and future policies. (Fiscal Reps) Mexico fiscal reform bill passes Congress lower house Mexico's lower house of Congress has passed a modified version of President Enrique Peña Nieto's fiscal reform bill that removes an earlier provision that banned insurers and surety companies from deducting policy reserve additions from their taxable income, according to Moodys. The rating agency said the removal of the provision is credit positive for Mexican insurance and surety companies because their largest cost of doing business will continue to be deductible for income tax purposes. The Mexican Senate is likely to approve the bill, which would take effect in January, said Moodys. "Removal of the provision will keep tax treatment of Mexican insurers consistent with tax practices in major insurance markets worldwide, and insurers and surety companies will maintain their profitability and capital generation ability. Had the original proposed amendment been approved, earnings, and possibly also capital strength, likely would have been significantly impaired, threatening the market's viability," said Moodys. It added, "Indeed, we estimate that the industry's net income would have decreased by approximately 82% (to MXN4bn from MXN23bn) in 2012 had insurers not been able to deduct the cost of establishing actuarially justified reserves for their policy liabilities." In addition to loss reserves, Mexican insurance and surety companies accrue catastrophic and contingency reserves, respectively, which will also remain tax deductible under the bill passed last week, said Moodys.

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