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Welcome to our Monthly Newsletter – December 2007

Talk Around the Bazaar

  • It looks like Portugal is to become the next country to establish a pool to provide cover for Catastrophe risks. Although the pool could be in place before the end of the year, actual implementation will take longer. One of the main issues to be resolved is whether to include terrorism alongside natural catastrophes such as earthquake. Meanwhile, in Germany the Finance Ministry has extended the €8 billion backstop for Extremus AG, set up to cover PD and BI risks against terrorism. Just in time for Thanksgiving, the U.S. Senate passed the seven year terror backstop extension
  • In the U.K. large local government authorities are establishing a mutual insurer (the Councils Alternative Risk & Insurance Group) in answer to the perceived lack of competition between insurers ready to insure large authorities. This follows the creation of two others, set up for the same reasons
  • While the E.U. Commission has been asked to consider introducing collective actions in cross border disputes (note: not U.S. style “class actions”…), the Italian parliament is ready to introduce class action law suits next year
  • Chubb’s former partner in India, HDFC, has now teamed up with Ergo to form a joint venture to continue its growth throughout the country. Ergo’s parent, Munich Re has said it would be willing to buy life and non-life firms elsewhere in Asia to aid Ergo’s development in the region
  • Here is a question for the attentive reader: since the introduction of our wanderings around the Bazaar, one country has figured more than any other, which is it and why? Get it spot on and there is something in it for you
  • According to the Asia Insurance Review there are 2,297 insurance intermediaries in China, including 317 brokers, 1,725 agencies and 255 assessors. Chang’an Insurance Brokers Co, owned by the State Grid Corporation is the largest broker in the country with a 15.6% market share. In their research report into the market, Lloyd’s says that the development of a strong broker market is vital
  • The National Insurance Company in Pakistan (state owned) has developed a crop insurance scheme which will be in place before the next sowing season in June next year
  • In order to reduce the strain on the government budget, a health insurance scheme for expatriates has been approved in Bahrain. As yet another GCC country starts to provide such coverages, it is surprising that the banks are not lining up to get into the distribution pie

  • Aviva and a Polish bank have seen the light, however, and BZ WBK‘s nationwide network will distribute life and non-life products throughout the country
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    We are currently discussing projects in the following markets and are regularly being asked to attend the annual conferences and meetings of the major networks:

  • Canada
  • France
  • Germany
  • India
  • Ireland
  • Italy
  • Netherlands
  • Poland
  • Portugal
  • Romania
  • Slovenia
  • South Africa
  • Turkey
  • South Africa
  • United Kingdom
  • U.S.A.
  • * * * * * * * * * *

    We continue to work with a growing number of networks to improve and expand their international capabilities.  If you have not already spoken to us about expanding your international markets, as we head towards 2008, now might be the right time for us to conduct a feasibility study. For more information, please see the contact details below.

    What Clients Say

    “Worldwide Risk Solutions seems to have a limitless supply of contacts”

    “Their understanding of international business has been very helpful to us”

    * * * * * * * * * *


    Worldwide Risk Solutions LLP
    20 Blunts Wood Road
    Haywards Heath
    West Sussex
    RH16 1NB, England

    Telephone: +44 (0)1444 450 919
    Mobile: +44 (0)7968 191 511


    Skype Name: georgeworsley

    Information appearing in WoRdS is checked for technical accuracy but is not intended to provide a basis of knowledge upon which advice can be given. Worldwide Risk Solutions accepts no responsibility for any loss occasioned to any person acting or refraining from action as a result of the material included in this newsletter.

    An Established and Successful Force in International Insurance

    Worldwide Risk Solutions is a U.K. based commercial organisation which has the sole objective of facilitating global business strategies and business development in the international insurance industry. For more information about us, please go to www.worldwiderisksolutions.com.

    Since Our Last Newsletter

    Whereas for many account handlers the last couple of months in the year are devoted to renewals, quite a few independent brokers are looking at their overseas representation and client servicing partners. Also brokers who handle incoming business referrals are keen to increase the flow of business coming their way. We have worked with some of these organisations to clarify expectations versus the possibility of re-aligning some of their international relationships. Where the perceived benefits of an international business relationship appear to be dwindling one must be decisive and avoid hanging on and hoping that things will change. Dissatisfaction affects commitment and this is a major part of the glue which keeps voluntary organisations ticking over. There is natural attrition in the membership of most networks of independent brokers and we have been helping some of them with the search for alternatives - many of whom have quickly turned out to be very effective.
    If you would like us to carry out an audit of your existing international relationships (we probably know most of the brokers concerned) or gaps in your international network, please contact us.

    In our SPOTLIGHT series we will help you understand the way different markets around the world operate so that those of you who do business there can feel more “at home abroad.” Different does not need to mean difficult but knowledge of the needs and characteristics of specific geographic markets is an advantage to those who are active in the global economy. This helps avoid misunderstandings and unfulfilled expectations. We have now done articles on Turkey, Takaful, Australia and more; if you would like copies, please let us know.

    Taxtion Issues

    IPT – the Euro tax man’s new revenue source

    Insurance premium tax compliance across many countries around the world, especially Europe, has been one of the most challenging obligations for multi-territory insurers.  Historically, it has not been a big issue since tax authorities have been almost as disinterested as insurers have been poorly informed.  However, this is changing fast.  European tax authorities, armed with new EU legislation, are moving in on insurers and insureds, which they see as easy targets.


    The Tax Man Cometh

    For many years, premiums paid for policies which covered more than one territory only attracted IPT in the country of policy issuance. For example, IPT on an English property policy covering locations in the U.K. and the Netherlands would only be paid to the Inland Revenue in England – none of it would be forwarded to their Dutch counterparts. Similarly, if a Spanish parent pays the whole premium and asks its French subsidiary to reimburse their share internally, the issue of IPT will probably not be handled properly. "But who cares? This is the way it has always been done" - is probably what people say. But in these days of Compliance, Financial Service Authorities, Transparency, etc, all parties involved in the transaction need to get things sorted out before the Tax Man comes along with a big stick – and not only the Tax Man but the Compliance Officer, too.

    What has brought IPT to the centre stage recently is the keenness of tax authorities in Europe to chase the non-compliant and catch up on missing taxes.  They are using a variety of tricks:
  • The latest Mutual Assistance Directive has given the authorities powers to exchange data on insurers.  This tool is proving very popular in Germany, who is actively approaching tax bodies elsewhere to see whether foreign insurers have been providing cover in their territory
  • Insurers correctly applying for foreign Passporting rights abroad are finding that the tax authorities are now checking this off with their own records to see that the insurer is properly registered for IPT. Greece and Italy are hot on this
  • Long term, there is talk of regulators starting to cooperate too; but it’s early days.
  • How IPT works

    IPT is an indirect tax on the gross premium written. Insurers providing risk coverage across European borders under the Freedom of Services Directive are probably liable for IPT in almost every country covered under their policies.  Where an insurer is writing a domestic only policy, the tax authorities will expect the insurer to register for IPT, calculate amounts payable on policies, collect this, file periodic returns and pay over any taxes due. In some countries, like the Netherlands, the broker does a lot of this preparatory work. Where an insurer covers a handful of countries under one policy, they are expected to be registered for IPT in each of those territories and they usually are through their branches or subsidiaries. If we are talking about a cross border policy and the insurer does not operate in the territory concerned, there is no local policy but the insured there has to pay their share of the premium, the carrier should appoint a local fiscal representative to collect the relevant tax. But how often does this happen? This is when problems can start.

    One of the key developments over the past few years has been understanding where the IPT is due.  A landmark case, Kvaerner, determined that the tax is due in the country where the risk is located.  This means many multi-jurisdiction insurers are now liable to comply in as many countries as they underwrite risks.

    Why is it so difficult to get to grips with?

    The principle reason for the difficulties around European IPT is that it does not come from a central, source code of legislation – like VAT.  Whilst the separate jurisdictions have built up the fundamentals from the same risk classes, details vary enormously.  Tax rates, too, vary hugely from 1% of the premium right up to 45%.

    On top of this, there is limited credible information covering the whole of Europe.  There are very few directories to be purchased, and those which exist are light on the detail of compliance. (Of course, the French tax authorities ‘losing’ their IPT team this summer in a property move did not help the cause either).

    Parafiscal Charges as well?

    Whilst insurers have started to get to grips with IPT, the next hurdle is Parafiscal Charges. These are levies set by various national organisations on top of the IPT on policies. The most common and (relatively!) easy to understand is Fire Brigade charges on property insurance. This occurs in many countries.

    However, beyond this, each country’s individual national pre-occupations start to take over: Victims of Extortion Fund on Italian motor and fire insurance, or Fund for Agriculture on certain classes in France are some examples.

    Which countries levy IPT

    There is an IPT system in most of the ‘old’ European countries and in many countries globally.  Variations are enormous, particularly around Life and Pensions business.  In the new EU Accession countries, there are some early adopters (e.g. Slovenia), and some viewing it as a VAT issue (e.g. Bulgaria).  Otherwise, beyond Europe, regulators will insist on local establishment which is the easiest way to ensure payment of taxes.


    Most European countries still require insurers to appoint a local fiscal representative.  This is a person who is jointly and severally liable.  The good news is that this person will be able to keep the insured compliant for IPT and the wealth of Parafiscal Charges.

    During the past five to ten years, forward thinking organisations who have sought to prevent rather than cure a Kvaerner type situation have often been confronted with the comment: “you have a solution, but we don’t see the problem.” Times are changing, because what will happen when the following question is incorrectly answered: “are we compliant?” For those in a non-compliant position – which includes many famous names, then coming clean seems to pay dividends.  Tax authorities are often amiable to compromise on penalties and fines.  However, for those who are putting it off until the increasingly energised tax authorities catch up with them, start practising that apology e-mail to your CFO.

    In preparing this Spotlight article we received invaluable assistance from the global management and accounting outsourcing firm TMF in London (www.tmf-group.com e-mail richard.asquith@tmf-group.com) for which we are grateful.

    If you would like Worldwide Risk Solutions to conduct an economic, business and insurance survey of any international markets please contact us – Details below.

    Worldwide Risk Solutions has access to a wide client base of internationally oriented organisations. Why not utilise this knowledge and experience? We can conduct a swift appraisal of your global activities or answer any questions you may have about international developments. Call +44 (0)1444 450 919 or send us an e-mail and we will respond immediately.

    With 2008 just around the corner, we hope that you have had a good 2007. We wish you all a merry Festive Season and a healthy and successful New Year. If Worldwide Risk Solutions can help you identify opportunities and achieve further profitable growth, we would be happy to help. And should you be passing through London, please let us know.

    In our next e-newsletter we will feature a Spotlight on Guernsey. We all know that the Channel Islands are special and popular for high flying financiers. But what really goes on there? In our next edition of WoRdS we will unveil some of the secrets.

    See our Contact Details

    George Worsley, Director
    Worldwide Risk Solutions
    Telephone +44 (0)1444 450 919
    E-mail info@worldwiderisksolutions.com

    © Worldwide Risk Solutions LLP 2007