Tax and regulatory news

Problems of market access for EU insurers

Insurance Europe has published a paper highlighting the key regulatory and market access issues that EU (re)insurance companies encounter in the United States, Brazil, Ecuador, India, Indonesia, China, Argentina and Russia.

“These countries represent very important markets for the European insurance industry and existing trading relationships could be further enhanced by both the removal of trading barriers and increased regulatory convergence,” said Insurance Europe. “In order to achieve these goals, effective regulatory dialogue between stakeholders at all levels is essential.”

The paper noted that while its focus was on market access issues, EU (re)insurers’ competitiveness in other jurisdictions remains dependent on the progress made in determining third countries’ equivalence under Solvency II. “Without timely action, EU (re)insurers will not be able to appropriately take into account their operations in third countries for internal model application when calculating their regulatory solvency capital requirement. This would place EU firms at a competitive disadvantage vis-à-vis domestic companies operating in those jurisdictions,” it said.

The Insurance Europe position paper, ‘Summary of market access issues for European insurers and reinsurers’, can be found in the International Programme News Databank on the website.

hide

ESAs identify vulnerabilities affecting the EU financial system

The Joint Committee of the European Supervisory Authorities, comprising the European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA), has published its Spring 2016 Report on Risks and Vulnerabilities in the EU Financial System.

The Joint Committee highlighted three main risks affecting the European financial system and suggests a set of policy actions to tackle those risks. Firstly, the low profitability of financial institutions in a low yield environment. Secondly, the increasing interconnectedness of bank and non-bank entities, and the Joint Committee said it believes that this risk should be tackled through enhanced supervisory monitoring of concentration risks, cross border exposures and regulatory arbitrage.

Lastly, it pointed to the potential contagion from China and other emerging markets. The Joint Committee called on national supervisors to include emerging market risk in sensitivity analyses or stress tests and to scrutinise optimistic assumptions of financial institutions with regard to emerging market exposure and returns from emerging market business.

Gabriel Bernardino, Chairman of the European Insurance and Occupational Pensions Authority (EIOPA) and the current Chairman of the Joint Committee, said: “The Joint Committee is fully committed to continue promoting supervisory convergence to further eliminate supervisory arbitrage and improve the stability and confidence in the EU financial system. We will be monitoring the developments and bilaterally engaging with the national supervisory authorities.”

Aspiro decision could mean increased VAT costs for UK insurers

The European Court of Justice has released its decision in the ‘Aspiro’ case which was considering whether claims handling services should be subject to VAT under European law. Specifically, the decision found that claims handling was not within the scope of the VAT exemption for insurance related services and therefore should be subject to VAT.

“The decision in this case highlights the clear difference between the expected VAT treatment of claims handling in UK and EU law,” said Richard Insole, indirect tax partner at Deloitte. “If HMRC are required to reassess their VAT position in this area, it could result in significantly increased operating costs for UK insurers and an impact on policy premiums as a result. The outcome of the case will be viewed by many as unsurprising given previous judgements of the European Court in this area dating back as far as 2005.”

He added: “Until now, HM Revenue and Customs have resisted changing the UK’s treatment of such services on the basis that the European Commission has been undertaking a wider review of VAT treatment and financial services. However, this exercise was recently abandoned, leaving a question mark over whether the UK can continue to support its current treatment. Exactly what HMRC intends to do next is not yet known, but our expectation is that following this decision, HM Revenue and Customs will come under increased pressure from the European Commission to change UK law.”

Insurance supervisory levies scaled down in China

Insurance supervisory levy rates have been reduced in China, as part of an ongoing strategy to lessen the tax burden on the insurance industry, according to TMF Group.

China’s Insurance Regulatory Commission published a notice at the start of 2016 announcing reductions in the rates of insurance supervisory levies, the second cut in insurance supervisory levies in the last five years.

Ying Chen, Senior Tax Content Analyst, TMF Group, explained that for levies charged on premiums, insurance companies that write liability insurance, credit insurance and short-term health insurance are subject to a rate of 0.06%. Insurance companies that write accident insurance and property damage insurance should pay a rate of 0.08% and a rate of 0.04% is charged on companies that write life and long-term health insurance.

She added that for levies charged on registered capital, a rate of 0.04% is applicable to the insurance companies with a cap value of CNY2 million. A flat rate of CNY20,000 per year is employed on representatives of foreign insurance companies.

Agricultural insurance and some other state-grant insurance policies are exempt from the levy. The levy regime also covers insurance brokers and intermediary entities. The latest notice has retrospective effect from January 1 2014.

Lloyd’s signs Cooperation Framework with Dubai

Lloyd’s has signed a Framework for Cooperation with the Dubai Financial Services Authority (DFSA). The Framework is designed to ensure an efficient and effective flow of information between the DFSA and Lloyd’s relating to Lloyd’s business in the Dubai International Financial Centre (DIFC) that will promote and enhance effective supervision.

Lloyd’s Chairman John Nelson said, “This Framework for Cooperation recognises the responsibilities and common interests between Lloyd’s and the DFSA in ensuring Lloyd’s business in the DIFC is appropriately conducted and supervised.”

He also highlighted the potential threats to the region, referencing the Lloyd’s City Risk Index findings for the Middle East’s 16 largest growth cities. It found that collectively they will generate $2.4tn in GDP in the coming decade, but 15% of this economic growth ($367bn of GDP) could be at risk. Of the 18 threats, the top five for the region include market crash, sovereign default, terrorism, power outage and cyber-attack, he said. In 2015 Lloyd’s Dubai generated an estimated $91m in gross written premium, forecast to grow by 30% in 2016.

Insurance Europe updates indirect taxation guide

Insurance Europe has published an update to its booklet on indirect taxation on insurance contracts in Europe. The booklet, which is renewed annually, provides a guide to the fiscal and parafiscal taxes on premiums in each of its member countries with indirect taxation on insurance contracts.

For each country there is a table mentioning the risks covered by specific fiscal or parafiscal taxation. Any other risks that are subject to the basic regime are shown under the “other classes” heading. A description is also given of the tax return and payment procedures for contracts taken out by way of freedom of services (FOS) according to the provisions of the European Directives on insurance.

The booklet includes a full survey of rules, tariffs and regulations in European markets, and provides an overview of the taxes applicable to insurance premiums, as well as the various declaration and payment procedures in most European states.

London Market backs remaining in European Union

More than two thirds of insurers, brokers, and service providers in London’s international insurance market have said that leaving the European Union would be bad for business. Research commissioned by Haggie Partners found that 68.7% of market practitioners believe Brexit would ‘hurt’ or ‘severely damage’ Lloyd’s of London. Slightly more than a quarter (25.1%) believe it will have no impact, while only 6.2% believe Brexit would benefit Lloyd’s.

Of the respondents, 69.9% sell directly into the EU, and of the remainder, 58.2% sell indirectly into the EU. Only 12.7% sell nothing into the European Union. These sales are reflected in the respondents’ workplaces: 70.3% of London market practitioners said they work with colleagues from other member states of the EU. Nearly 59% ‘believe that the EU Single Market for insurance is the best realistic international regulatory regime’ for Lloyd’s insurers. As Lloyd’s expands its international presence, 45.8% of respondents chose the EU as the top priority for development, compared to 23.7% selecting China, 16.2% Latin America, 10.7% India, and 5.5% the Middle East.

Lloyd’s centrally has clearly stated its preference for Britain to stay within the European Union, and this research shows that, from a business perspective at least, the vast majority of companies in the London market agree’, said Dr Adrian Leonard, who constructed the survey for Haggie Partners.

Lloyd’s Market Association’s model clauses published

A suite of 18 generic model clauses has been published, together with guidance, by the Lloyd’s Market Association (LMA) to assist Lloyd’s managing agents in updating their policy wordings in relation to the new Insurance Act 2015 (the Act) and for continuing use in the marketplace. The clauses are available in the Lloyd’s Wordings Repository in preparation for the Act which comes into force on August 12.

Kees van der Klugt, the LMA’s director, legal and compliance, said: “Many existing standard policy wordings will need some degree of updating before August, and these clauses should be very useful for all concerned as a point of reference.”

The clauses can be used by managing agents, brokers and clients to ensure consistency with the Act and to create additional contract certainty under a number of the provisions of the Act, where thought necessary.