Allianz Global Corporate & Specialty

International Insurance Solutions

Angelo Colombo November, 2014

Increasing demand for international services

Increasing globalisation is fundamentally changing the business landscape – and with change comes new challenges for international risk management.

     New exposures from vertical and horizontal integration and accelerated supply chains Global interdependencies between suppliers and customers, as well as with business partners Increased regulation creates additional need for transparency and corporate governance Mergers, acquisitions and joint ventures – often with diverse cultures    Multinational legal and fiscal environments Increased international trade in emerging markets – increasing exposures and the potential for international litigation Pressure to improve efficiency and effectiveness of risk management, especially on a globally coordinated basis New risks emerging from mergers, acquisitions and joint ventures

Never before has there been a greater need for integrated risk management – globally coordinated and managed, but locally delivered…..

International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20 2

Business is global and so are the risks

Insured location 5 Insured location 4 Indirect Supplier Insured location2 Insured location 1 (HQ) Indirect and direct Supplier Insured location 3 Direct customer Power Supplier How should your risk management respond in case an event arises?

International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20 Indirect customer 3

Which solutions can risk managers chose from ?

Building blocks Stand alone local policies DIC/DIL above local policies Single European policy (FOS) International Insurance Solutions

(IIS) is the broader meaning of different structures and services that can be offered in response to specific global insurance needs of different clients and their set up.

Centrally controlled master program

International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20

Program structure

Property example

DIC/DIL FOS (optional)

Master Policy provides Difference in Condition (DIC) and Difference in Limits (DIL) cover, over and above locally admitted policies.

1: Parent company (e.g. in Singapore) 2: Thailand 3: Australia 4: FOS Countries 5: US Geographical territories      Local policies issued dependent on risk and maturity of market Master cover provides global umbrella Harmonized coverage across the program for corporate protection Premium is allocated in relation to local risk and exposure Local policies are re-insured by the master policy insurer to the level legally permitted 4

However, regulatory pitfalls have to be avoided

Over 200 local insurance laws & taxes vary country by country (sometimes, even state by state)… Violations can result in :       Unanticipated tax charges Fines and penalties Trade disruption Sanctions & Embargoes Reputation risk Prison Countries to watch out E.g., Brazil, China, India, Russia International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20 5

How to deliver a comprehensive, consistent & compliant, insurance program that covers all the main risks at a cost-effective price?

C

ost

C

ontrol

C

ompliance

C

overage

Overall risk managers need to balance the 4C’s when choosing the optimal solution for their company

International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20 6

It ’s all about flexibility …

We offer truly customized international insurance solutions for clients with international risk exposures aligning local and global coverage

Property Example DIC/DIL FOS (optional)

Geographical territories  Local policies follow best market standards  Adequately reflecting and covering client local risk  Including mandatory local coverage  Taking local supervisory aspects into consideration, e.g. minimum local retention  Administration of local taxes  Risk based premium allocation

DIC/DIL Liability Example

FOS not recommended Geographical territories

Umbrella

    Pooling of local policies via reinsurance *) Harmonizing overall coverage by including local companies under the Master in DIC / DIL Captive fronting based on client needs Potential sharing of risks with a panel of coinsurers / reinsurers *) to the degree legally permitted International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20 7

Regulations and Compliance The Question of „Admitted“ versus “Non-Admitted“

•Local insurance law (more than 200 different laws) mandates that a policy is issued or coverage provided with an insurer licensed in the country where the risk is located.

Admitted:

An admitted policy is a policy issued or coverage provided by an insurer to a policyholder domiciled in a territory where that insurer is licensed

.

Non-Admitted:

A Non Admitted policy is a policy issued or coverage provided by an insurer to a policyholder domiciled in a territory where that insurer is not licensed.

Exceptions:

Self procurement, prior approval by host state regulator, broker licensed etc. International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20 8

2. Expertise

Your questions on legal aspects of international insurance program answered I/II

What does admitted and non-admitted insurance mean?

M

any countries have regulations in place requiring that insurance be taken out with insurance companies that are licensed

(admitted)

to write direct insurance business in the country. In those countries the provision of cross-border insurance on a direct basis

(non admitted)

is prohibited or subject to conditions.

How do IIP respond to this?

A

s part of an international insurance program, local policies are issued related to the risk and exposure as well as capacity and cover available in the market, which are respecting local regulatory aspects. Our extensive global network allows us to issue admitted local policies in countries where your risks are located.

Why does Difference in Conditions / Limits (DIC/DIL) matter?

D

epending on the capacity and coverage of markets and the agreed structure of the international insurance program, it can be more efficient to provide additional coverage and/or limits through the master policy complementing the local policies. DIC/DIL is subject to cross border insurance provisions described above.

How can AGCS help you?

W

here permitted the foreign subsidiaries of the parent company can be included as additional insureds in the master policy. The DIC/DIL provision describes the additional coverage provided above local policies. The parent company is the policyholder of the master policy and receives the loss payment. International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20 9

2. Expertise

Your questions on legal aspects of international insurance program answered II/II

Why does Insurance Premium Taxes (IPT) matter?

I

n countries where IPT exists, the tax laws regulate the amount and calculation base for insurance premium taxes, levies and fees (parafiscal charges to IPT) that are charged in relation to the insurance premium.

How can AGCS help you?

O

ur extensive global network allows us to issue admitted local policies that take care of the local IPT requirements and the handling of the IPT and its parafiscal charges (to collect and transfer to the tax office). Within our international insurance program’s premium allocation is related to local risk and exposure.

Why does transfer pricing matter?

T

ransfer pricing regulations should be considered if the parent company centrally purchases insurance coverage on behalf of its subsidiaries but pays premiums centrally. The customer should ensure that the group internal allocation of premiums and claims payments complies with the arm’s length standard to avoid double taxation.

How can AGCS help you?

T

he parent company must consult with its accounting, tax and finance specialists and analyse its needs and obligations. Once the client has performed the analysis, we consider those aspects in structuring the international insurance program.

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2. Expertise

A client example

A Singapore based company with subsidiaries all over the world purchases international insurance programs in various lines of business US International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20 Germany Italy Austria Singapore Thailand Australia HQ 11

2. Expertise

Property

claims example: The case of natural catastrophe

Scenario description

3 months of flooding

caused huge damages to a Thailand factory with a coverage of Total Sum Insured: Property Damage (PD) EUR 300mn Business Interruption (BI) EUR 200mn

Total EUR 500mn Cat Limits agreed

Master Flood Limit Local Flood limit EUR 40mn EUR 30mn Example of Settlement (Illustrative & simplified)

DIC/DIL FOS (optional)

EUR 40mn Loss due to physical damage on machinery, building, etc. (PD) Loss due to business interruption (BI) EUR 15mn EUR 25mn Total loss EUR 40mn International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20 Geographical territories

Local Compensation EUR 30mn DIC / DIL Compensation EUR 10mn Total Compensation EUR 40mn

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2. Expertise

Liability

claims example: The case of production interruption

Scenario description One of the Client ’s component of a

production line was defective

due to a design error and caused property damage to 25 customer in 5 different countries. The components have to be exchanged. Property damage EUR 1 mn and costs for dismantling and reinstallation EUR 5 mn.

International Insurance Solutions © Copyright Allianz Global Corporate & Speciality 28-Apr-20 Affected are  5 local policies with a limit of EUR 1mn each for the property damage  Master Policy for the exchange costs (DIC) with an overall limit of EUR 50mn Total loss EUR 6 mn Example of Settlement (Illustrative & simplified)

DIC/DIL Umbrella

EUR 6mn loss Geographical territories 13