Tax and regulatory news

New Mexican insurance law mirrors Solvency II The Mexican Congress has approved a new legal and regulatory framework for insurers that will become effective during the first quarter of 2015. According to Moody's, the new framework will reinforce the insurance industry's legal, regulatory and capital rules. The new law adopts Solvency II and has new capital requirements for companies in line with the intrinsic risk associated with their specific lines of business, said Moody's, adding that this is an improvement over the current regulatory factor-based, risk-adjusted capital guidelines. In addition, the new law requires stricter corporate governance standards, such as independent board members and risk and investment management committees. "Although these new developments are generally credit positive for the industry and for leading market participants, some smaller market participants, such as Seguros Latinoamericana, Saludcoop México, SPT Sociedad Mutualista de Seguros, will have to make further investments in systems and technology and undertake significant organizational initiatives to comply with the new framework," said Moody's. "As a result, we expect the new law to initiate consolidation in the industry."hideMoody's said that the new law will increase and improve the quality and quantity of financial information relating to insurers' solvency provided to policyholders, distributors, counterparties and investors. African nations tighten up premium requirements The Nigerian regulator has strengthened its insurance premium and remittance requirements due to challenges arising from significant outstanding premium amounts reported by Nigerian insurers, according to the latest AIG Market Alert (see IPN Databank). Therefore, effective January 1, 2013, Nigerian insurance policies may only be issued once all corresponding premium has been collected. In order to meet the requirement, brokers need to notify the insurer within 48 hours of receiving the premium of the insured. In August 2012, the Ethiopian government implemented a new "No Premium, No Cover" rule mandating that insurance policies may not be issued until the full premium has been paid to the insurer. Policies issued before payment is received are considered void. And according to AIG, 2012 regulations in Zambia require all insurance policies, debit notes and invoices to be issued in the local currency, Zambian Kwacha (ZMK). Indian insurance bill could lead to free trade deal with EU The much-delayed free trade agreement (FTA) between India and the European Union (EU) may finally get through if the government is able to amend the law to allow greater foreign investment in Indian insurance firms, according to Mint, a business newspaper in India with an exclusive agreement with the Wall Street Journal. If a deal can be negotiated, it will be closed in April when trade ministers from both sides meet. Talks on the bilateral trade and investment agreement started in 2007, and the two sides have missed at least four deadlines to complete negotiations, said the newspaper. It quoted a commerce ministry official as saying there was a very good chance of reaching a deal this time. Of the 21 private general insurance companies in the country, seven are partnerships with firms headquartered in Europe. The Indian insurance amendment Bill proposes raising the foreign direct investment cap for the sector to 49% from 26%, but according to the Mint report, the standing committee on finance, headed by main opposition Bharatiya Janata Party leader Yashwant Sinha, is opposed to the move. "The government is trying to forge a consensus with opposition parties to ensure passage of the Bill and may table the Bill in Parliament in the second half of the budget session, said a finance ministry official. The finance ministry is also exploring an option to allow foreign institutional investors to hold up to a 23% stake in Indian insurance firms, maintaining the foreign direct investment limit at 26%, if a consensus can't be reached," the newspaper reported. India halves compulsory cession to GIC Re The Hindu Business Line reports that India's Insurance Regulatory and Development Authority (IRDA) has halved the requirement for compulsory ceding of reinsurance business by domestic general insurers to the General Insurance Corporation (GIC Re). According to the paper, a general insurer has to now place 5% of its total risk with the designated national reinsurer, GIC Re. Previously, the compulsory cession was 10%, and has been steadily reducing in recent years, from 20% before 2007, to 15% in 2007 and 10% in 2008. Ireland signs IAIS' Multilateral Memorandum of Understanding The International Association of Insurance Supervisors (IAIS) has revealed that that the insurance supervisor of Ireland is the latest to join an international supervisory cooperation and information exchange agreement. There are now 34 jurisdictions admitted as signatories to the IAIS Multilateral Memorandum of Understanding (MMoU), representing more than 52% of worldwide premium volume. Peter Braumüller, Chairman of the Executive Committee of the IAIS, said, "We are glad to welcome Ireland to the MMoU and to see it grow, in less than six years, to a tool covering more than 50% of worldwide premium volume. The global insurance marketplace in which we operate demands an insurance supervisor with the ability to cooperate quickly and effectively for the benefit of consumers. The MMoU is an essential regulatory tool - not only in crisis situations, but on a day-to-day basis - for supervisors to foster safer and more stable insurance markets, and the IAIS encourages each of its Members to become a MMoU signatory." Singapore modifies Work Injury Compensation Act Singapore's Work Injury Compensation Act was modified with effect from June 1, 2012, with increased limits for death, total permanent incapacity and medical expense coverage. While employees injured in a work-related fight are generally not entitled to compensation, it is available for employees with diseases directly attributable to work exposures due to chemical or biological agents (excluding SARS or avian influenza) or prolonged heat exposure. Work-related exclusions - except those pertaining to asbestos, war and terrorism - are prohibited. Insurers may be liable even if policies include these exclusions. Claims made more than one year after an accident are generally not excluded from coverage if the delay is due to a reasonable cause, such as an absence from the country. (Source: AIG Market Alert) Japan's Workers' Compensation scheme extended The Japanese government has extended its Workers' Compensation scheme to compensate those killed or injured by an earthquake or tsunami during working hours. As a result, death/injury claims arising out of the Tohoku earthquake/tsunami will be treated as work-related injuries, payable under the government's scheme. At the same time, Japanese insurers have begun implementing a new system whereby insured drivers who have had an accident covered by a non-fleet (less than 10 vehicles) auto policy will be charged around 35% higher premium upon the policy's renewal over the three years following the accident. If another accident occurs during those three years, the penalty will be extended up to six years. After these newly instituted punitive waiting periods, insureds can recover one grade each year they are claim free. The new system will apply to policies renewing after October 1, 2013. (Source: AIG Market Alert) Indirect tax changes round up from TMF Group TMF Group has reported a number of indirect tax changes that could impact global programmes: Chad has reduced IPT rates on transport and fire insurance; In Hungary, the registration process is starting for the new IPT regime, although uncertainties remain; Many Spanish Municipalities (there are over 8,000) are now starting to collect their share of Fire Brigade Charge. This is outside of the existing UNESPA collection of the 5% or 2.5% charges on multi-risk and fire only policies, respectively; Turks & Caicos has withdrawn plans to replace IPT with a new VAT regime New insurance laws in Korea In Korea, a new law requires each occupant of a multi-tenant building to insure their liability for the spread of fire. The law applies from February 23, 2013 to new occupants, and from August 23, 2013 to existing occupants. The minimum liability must be: Third party bodily injury: KRW100m (USD88,000) per person and KRW2bn (USD1.75m) in total; Third party property damage: KRW300m (USD263,000) Proposed amendments to Korea's Insurance Law, intended to benefit policyholders, took effect on January 1, 2013. The amendments: Require insurers to offer stand-alone health insurance products; Allow policyholders to choose between co-payment rates of 10% or 20%; Require insurers to annually update premiums and offer policyholders the opportunity to change coverage details more frequently. (Source: AIG Market Alert) Brazil tightens capital requirements for insurers The Superintência de Seguros Privados (SUSEP), Brazil's insurance regulator, has published a resolution refining and tightening capital requirements for insurers and reinsurers. The initiative continues the regulator's effort to increase surveillance and incorporate more prudent capital requirements for insurers and reinsurers in Brazil, adjusting the Brazilian market to Solvency II standards, said Moody's. "SUSEP's effort to risk-adjust the capital of local reinsurers and insurers seeks to better reflect a company's risk and will lead to increased regulatory capital requirements and improved solvency, which are credit positive. However, some smaller and/or less well-capitalized insurers will be challenged to raise the additional capital to maintain healthy solvency margins above the new requirements," said Moody's. It explained, "As a result of the stronger capital requirements, we expect companies to raise additional capital to maintain their capital cushions above the higher capital charges. The extent to which insurers will need additional capital injections, as they incorporate additional risks into local solvency margin guidelines, will vary significantly among companies." Insurers and reinsurers that have managed their risks effectively and have reported strong results will have an advantage in raising new capital over less efficient competitors, said the rating agency. "The ability to increase capital could be challenging for companies with weaker profitability and less capacity to generate internal capital, possibly leading to greater merger and acquisition activity among these weaker companies," it added. New minimum retention requirements in Kazakhstan The Kazakh Regulator has imposed new minimum retention requirements for policies with limits equal to, or above, KZT1bn (USD6.64m), based on an insurer's solvency margin and portfolio mix. Insurers are expected to comply with the new requirements for all policies in force on December 31, 2012. According to AIG, the new mandate may impact the structure and pricing of Controlled Master Programmes that include local policies in Kazakhstan. Turkish premium tariff rate change With effect from January 1, 2013, insurers in Turkey must charge premium against Earthquake and Volcanic Eruption Loss of Profit cover, no less than 50% of the mandatory existing Property Damage tariff rates. (Source: AIG Market Alert) Germany amends Pharmaceutical Act over reinsurance cessions The German Pharmaceutical Act was recently amended to require reinsurance cessions and retrocessions under local and Freedom of Service policies covering German pharmaceutical risks to be ceded to "independent" reinsurers (i.e., reinsurers that have no ties to the policyholder) that are: German reinsurers; or Domiciled in the European Union (EU) or European Economic Area (EEA); or Third country reinsurers located in Solvency II equivalent jurisdictions. According to AIG, the amendments provide insurers with a transitional period until January 1, 2014 to comply with the new requirements and would prohibit any cessions to captives, effective January 1, 2014 Insurance Europe warning over EU financial transaction tax The draft Directive from the European Commission, which sets out the legal framework for the introduction of a financial transaction tax (FTT) in 11 EU member states, will have a negative effect on insurers, their customers and the EU economy, according to Insurance Europe, the European insurance federation. The Directive, if adopted, would levy a tax on all transactions on financial instruments between financial institutions when at least one party is located in one of the states that intend to participate in an FTT under "enhanced cooperation". The current broad scope of the proposal means that it includes (re)insurance undertakings, although it excludes the conclusion of insurance contracts. "As it stands, the draft Directive will therefore have a number of damaging consequences for insurers and their customers," said Michaela Koller, director general of Insurance Europe. She explained that, for example, insurers and reinsurers use intra-group transactions to spread their risks in accordance with best risk management practice and to optimise their use of capital. In some cases these transfers are required by regulators. Imposing an FTT on such transactions will add costs to standard and well-established (re)insurance group activities that should be encouraged rather than discouraged, she said. Bangladesh eases rules on foreign investment in insurers The government in Bangladesh has issued a set of rules for facilitating investments by foreign nationals as equity partners in insurance companies in the country, according to a report in Bangladesh's Financial Express newspaper. Under the rules, such investments can be made without any limit. The paper explained that according to the rules, there is now no restriction on the purchase or retention of shares of any of the country's insurance companies by the foreign investors. Previously, there had been no such specific rule on purchase or retention of shares. The Financial Express quoted Sheikh Kabir Hossain, president of Bangladesh Insurance Association, who said the new rules will help attract foreign investments to the country's insurance sector, though the Association was not in favour of local partners' nominal or negligible holdings of equity in such companies. There are currently 62 insurance companies in Bangladesh, none of which have any foreign partnership. OECD report into base erosion and profit shifting The Organization for Economic Cooperation and Development (OECD) has published a report on base erosion and profit shifting (BEPS). The report concludes that BEPS is a significant problem for OECD member and non-member states, and that "the international common principles drawn from national experience to share tax jurisdiction may not have kept pace with the changing business environment." The Report concludes that in addition to a need for increased transparency on effective tax rates of multinational enterprises, there are several key pressure areas, including: tax treatment of related-party debt-financing, captive insurance, and other intra-group financing; transfer pricing, in particular in relation to the shifting of risk and intangibles, the artificial splitting of ownership of assets between group legal entities, and group transactions that would rarely take place between independents; the effectiveness of anti-avoidance measures such as general anti-avoidance rules, controlled foreign companies regimes, thin capitalization rules, and rules to prevent treaty abuse; and the availability of harmful preferential regimes. The Report recommends an Action Plan that will include proposals to develop improvements or clarifications to transfer pricing rules to address specific areas where the current rules produce undesirable results from a policy perspective, and more effective anti-avoidance measures, which can be included in domestic laws or included in international instruments. Examples of these measures include general anti-avoidance rules, controlled foreign companies rules, limitation on benefits rules and other anti-treaty abuse provisions. The plan would also include rules on the treatment of intragroup financial transactions, such as those related to the deductibility of payments and the application of withholding taxes, and solutions to counter harmful regimes more effectively, also taking into account factors such as transparency and substance.

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