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NON-ADMITTED INSURANCE SUMMARY

Exceptions or restrictions may apply. A business decision should not be made on the basis of the following summarytable alone. Please refer to Appendix I.

Non-Admitted Insurance Compulsory Coverages

Insurers Buyers IntermediariesMotor (Auto)

LiabilityThird Party

Liability

Workers'Compensation

(private orstate scheme)

Others

Argentina

Exceptions Exceptions Exceptions Full Coverages List

Australia

Exceptions Restrictions Exceptions Full Coverages List

Austria


Belgium


Brazil


Canada


China


France


Germany


Hong Kong


India


Japan


Non-Admitted Insurance Summary

Report Generated: 18th March 2014 1 © Copyright Axco 2007 - 2014

Non-Admitted Insurance Compulsory Coverages

Insurers Buyers IntermediariesMotor (Auto)

LiabilityThird Party

Liability

Workers'Compensation

(private orstate scheme)

Others

Korea(Republic of)


Malaysia


Mexico


New Zealand

Exceptions Restrictions Restrictions Full Coverages List

Philippines


Portugal


Singapore


Spain


Sweden


UnitedKingdom


Non-Admitted Insurance Summary


TAX & ADMINISTRATION - PROPERTY

Country Insured payable taxes Insurer payable taxes Localcollectionmandatory

Market cashremittanceperiod

Tariff rated

Argentina • 0.6% SSN levy,

• 0.1% excise tax,

• 21% VAT,

• 0.50% social services tax,

• Discretionary financial surcharge- seldom now applied.

Provincial stamp duty andturnover tax may be applicablein some provinces

Fire brigade tax 0.32% Yes 30 days No

Australia • ACT:◦10% Goods and Services Tax(GST),

◦6% Stamp Duty (SD).

• NSW:◦10% GST,

◦9% SD.

• NT:◦10% GST,

◦10% SD.

• QLD:◦10% GST,

◦9% SD.

• SA:◦10% GST,

◦11% SD.

• TAS:◦10% GST,

◦10% SD.

• VIC:◦10% GST,

◦10% SD.

• WA:◦10% GST,

◦10% SD.

GST is not payable on non-admitted business providedthat the policy is negotiated,prepared and finalised by theinsurer outside Australia

Domestic insurers nil, 3%deemed profit tax deductedfrom premiums paid to non-admitted insurers, variableemergency service levy inNSW, plus fire service levyNSW variable, TAS 28% (0%for household risks)

No, thoughtaxaccountingfavours localcollection

90 days No

Austria • 11% premium tax,

• hail premium tax 0.02% on thesum insured,

• Fire brigade tax - up to 4%,calculated on fire element of totalpremium,

8% fire brigade tax,calculated on fire element oftotal premium (insured canbe charged up to half of this,ie 4%)

No 14 days No

Tax & Administration - Property




Tariff rated

Insured pays but insurer islegally liable for collection

Belgium • 9.25% premium tax,

• 6.5% parafiscal tax (applicable toflexa element of coverage, or2.275% if stand-alone terrorism)

• 0.06% parafiscal tax (applicableto flexa element of coverage, or0.021% if stand-aloneterrorism),

• Variable supervisory levy

No No legislativerequirement

No

Brazil Admitted insurance: 7.38%financial operations tax (nil forhomeowners (SFH system)and agriculture).Non-admitted insurance: 25%- but non-admitted usually notpermitted

Variable supervisory levy.0.38% remittance tax onforeign exchangetransactions unless policylegally issued in foreigncurrency, 2% withholding taxon overseas premiumcessions

Yes Normally 30days

No

Canada Admitted insurance:• Premium tax:

◦3% - Alberta, Manitoba, NewBrunswick, Northwest Territories(4% for fire), Nunavut (4% forfire), Yukon,

◦3.3% - Quebec,

◦3.5% - Prince Edward Island,Ontario,

◦4% - Newfoundland andLabrador, Nova Scotia,Saskatchewan (except hail 3%),

◦4.4% - BC.

• Fire Brigade Charges:◦1% - New Brunswick, NorthwestTerritories, Nunavut, PrinceEdward Island, Saskatchewan,Yukon,

◦1.25% - Manitoba, Nova Scotia.

• Retail sales tax:◦8% - Ontario,

◦8% - Manitoba (on risks locatedin Manitoba except farmbuildings and equipment,livestock, bloodstock and cropsinsurance),

◦9% - Quebec.

Non-admitted insurance:• Premium tax:

◦3% - Manitoba, New Brunswick,Northwest Territories (4% forfire), Nunavut (4% for fire),Yukon,

◦3.3% - Quebec,

Admitted insurance:Insolvency fund levy (nevermore than 1.5% of directpremiums) payable by allproperty and casualtyinsurers licensed in aprovince or territory inCanada. Not applicable toinsurers licensed to sell onlyone or more of the following -automobile insurance inManitoba or Saskatchewan,bodily injury claims undermotor insurances in Quebecand speciality lines ofinsurance such as surety,fidelity, marine or aviation.

Non-admitted insurance: nil

No, but localaccountingmandatory

Market practiceis 30 days forpersonal linesor 60 days forcommerciallines

No





Tariff rated

◦3.5% - Prince Edward Island,Ontario,

◦4% - Newfoundland andLabrador, Nova Scotia,

◦7% - BC,

◦14% - Saskatchewan (excepthail 13%),

◦10% to 50% - Alberta; at thediscretion of the superintendent.Reduced to standard premiumtax rate if special broker licensedin Alberta used.

• Fire Brigade Charges:◦1% - New Brunswick, NorthwestTerritories, Nunavut, PrinceEdward Island, Saskatchewan,Yukon,

◦1.25% - Manitoba, Nova Scotia.

• Retail sales tax:◦8% - Ontario,

◦8% - Manitoba (on risks locatedin Manitoba except farmbuildings and equipment,livestock, bloodstock and cropsinsurance),

◦9% - Quebec.

• 10% federal excise tax,

• 10% fine in Manitoba unlessusing special broker

China Nil • 5% business tax,

• 0.1% stamp duty,

• Average 0.5% municipal tax butvaries by area,

• 0.8% policyholders' protectionfund levy,

• Supervisory levy: 0.17% of netretained premium

No Maximum 30 to60 days. Cashbefore coverbeing enforcedin certainprovinces

Minimum rating methodologyapplies to power plants,offices, hotels, restaurants,schools, hospitals, places ofpublic entertainment, airports,telecommunications,computer and researchfacilities, semiconductor andpetrochemical risks andgovernment offices.Insurer agreements onminimum gross rates for otheroccupations being introducedprovince-by-province

France • Premium tax 9%, except:◦7% premium tax on fire elementof premium (except for “simplerisk”),

◦30% premium tax on fireelement of "simple risk",

◦Nil for agriculture risks.

• CAT NAT 9% premium tax

• Levy to finance the supervisor0.21 per mille of turnover,

• Terrorism fund EUR 3.3 perpolicy,

• Criminal compensation fundEUR 3 per policy,

• Agricultural disaster fund 11% ofagricultural property premium,

No, butevidence ofreal paymentmust beavailable

For insured, 10days for firstpremium. Forbroker, 60 to 90days

No, except for compulsorynatural perils and terrorismcoverages





Tariff rated

• Terrorism 9% premium tax • Technological risk levy EUR 3 to4 per policy for domestic multi-risks,

• Natural disaster prevention levy12% of CAT NAT premium

Germany • Fire and BI 22% premium tax (on60% of premium),

• Householders all risks (VHV)19% premium tax (on 85% ofpremium),

• Homeowners FLEXA all risks(VGV) 19% premium tax (on 86%of premium),

• Other property 19% premium tax,

• Agricultural business - weather-related perils: premium tax of 0.3per mille of sum insured.

The insurer is responsible forpayment of premium tax

Admitted insurance:• Fire and BI 22% FBC (on 40%

of premium),

• Householders all risks (VHV)19% FBC (on 15% of premium),

• Homeowners FLEXA (VGV)19% FBC (on 14% of premiumfor FBC),

• Variable supervisory levy.

The insurer is responsible forpayment of the premium tax(see Insured Payable Taxes).

Non-admitted insurance:• Fire and BI 22% FBC (on 40%

of premium),

• Householders all risks (VHV)19% FBC (on 15% of premium),

• Homeowners FLEXA (VGV)19% FBC (on 14% of premiumfor FBC)

No Legally cash forcover but inpracticenegotiable

No

Hong Kong Nil Nil No No statutoryrequirement,market practice:60 to 90 days

No

India Admitted insurance:• 12.36% (made up of 12% service

tax plus 3% cess charged on the12% service tax),

• Variable stamp duty.

Non-admitted insurance:12.36% (made up of 12%service tax plus 3% cesscharged on the 12% servicetax)

Nil.Service tax is collected fromthe insured and the(re)insurer is responsible forpaying it to the taxauthorities. Insurers are liablefor stamp duty (refer toInsured Payable Taxes) andmake the payment to theauthorities

Yes Cash for cover Yes for terrorism, otherwiseno

Japan Nil • JPY 200 stamp duty,

• Variable policyholders' fund levyYes Premiums

payable atinception orrenewal - strictlyapplied

Yes, for householdearthquake only. For all non-tariff classes, loss cost ratesmust be filed with thesupervisor and approved by it

Korea(Republicof)

Nil • KRW 100 stamp duty,

• 0.15% of gross written premium(GWP) to the InsuranceGuarantee Fund,

• 0.5% of net retained premiumminus paid claims for educationtax,

Yes Large casesthreeinstalments.Otherwisepayable atinception or

No





Tariff rated

• 0.1% of GWP to Korea DepositInsurance Corporation

renewal - strictlyappliedd

Malaysia Admitted insurance:• 6% service tax for corporations

except risks located in FreeZones, the Joint DevelopmentArea, or the islands of Labuan orLangkawi,

• Stamp duty MYR 10.

Non-admitted insurance: nil

Admitted insurance: Variablelevy to finance the Takafuland Insurance BenefitsProtection Scheme (TIPS).Non-admitted insurance:1.25% withholding tax (thistax is usually passed toreinsurers)

No 60 days Yes, but with some flexibilityon higher-valued industrialexposures

Mexico • 16% IVA (but 11% IVA for risks inBaja California Norte, BajaCalifornia Sur and Quintana Roo,or within 20km of any land borderuntil 31 December 2013; from 1January 2014 the rate is 16%.Policies renewing in December2013 and paid before 1 October2014 will still pay 11% IVA;payments received after that datein respect of 2013 policies andendorsements will be subject to16% IVA),

• Policy fee according to a scalebased on premium

Nil Yes Legally cash forcover unlessotherwiseagreed, inpractice 30 days

No, but rating schedules to besubmitted to supervisoryauthority on 30 day file anduse basis. Marketagreements may operate forsome classes

NewZealand

Admitted insurance:• 15% GST on premiums payable

to domestic insurers

• Fire service levy 0.076% onindemnity value or loss limit plusGST.

Non-admitted insurance: Fireservice levy of 0.076% onindemnity value or loss limitplus GST

Nil for admitted insurers but2.8% deemed profit taxdeducted from premiumsremitted to offshore insurers

No, except forEarthquakeCommissioncover

Normal creditterms forbrokers are 80days from theend of themonth in whichthe premium isdebited

No

Philippines • 12.5% stamp duty,

• 12.0% VAT,

• 2% fire service tax,

• Municipal tax: 0% to 0.75% ,

• PHP 15 stamp duty

NilInsurer is liable for stampduty if insured enjoysexemption from the taximposed, or in the event ofpolicy cancellation

No Payment atinception or upto 90 days forintermediary

Mandatory minimum ratesapply for earthquake,typhoon, flood and firefollowing earthquake

Portugal Admitted insurance andbusiness written under FOSby EU/EEA insurers:• Stamp duty 9%

• ANPC tax 13% on the fire andperils portion of the premium.

Insurers can charge a policyissue charge ranging betweenEUR 1.50 to EUR 6.00

Admitted insurance: 0.242%levy to finance supervisor.Non-admitted insurance:Notapplicable - non-admitted notallowed, though for businesswritten under FOS byEU/EEA insurers nil taxapplicable.

No but inpractice 100%paymentmade locally

No coverwithoutpremiumpayment (rulenot strictlyapplied for largerisks)

No





Tariff rated

Insurers are responsible forremitting taxes and parafiscalcharges to the authorities(see Insured payable taxes).FOS insurers must appoint atax representative forremittance of taxes

Singapore Admitted insurance: GST 7%.Non-admitted insurance: nil

Admitted insurance: variablelevies to fund supervisor andpolicyholders' protectionfund.Non-admitted insurance: nil

No No statutoryrequirement;generally cashfor cover forindividualinsurances and60 days for allothers

No

Spain • 6% premium tax (calculated onpremium plus fire brigade charge,ie 6.3% or 6.15%),

• 0.15% insolvency levy,

• 5% fire brigade charge if firepolicy only, or 2.5% if Multiriskspolicy (applies only to propertyportion of the premium),

• CCS extraordinary risks chargethat varies according to the riskand sum insured.

The municipality of Rivas-Vaciamadrid has introducedan additional fire brigadecharge of 7.5% on all propertyfire premiums - currentlycontested by UNESPA and theinsurance companies

Nil No In theory, cashfor cover. Inpractice, 30days forpersonal linesand 60 days forcommerciallines.

Yes, for Consorcio risks

Sweden Nil Admitted insurance: variablelevy to finance thesupervisor.Non-admitted insurance: nil

No No statutoryrequirement, inpractice variesby contract,typically 30days

No

UnitedKingdom

Nil Admitted insurance:• 6% insurance premium tax

(IPT),

• London Fire Brigade ChargeGBP 35 per GBP 1mn of valueinsured,

• Variable FSCS levy,

• Variable supervisory levy.

Non-admitted insurance:• 6% insurance premium tax

(IPT),

No No statutoryrequirement, inpracticenegotiable but90 days isindicative

No





Tariff rated

• London Fire Brigade ChargeGBP 35 per GBP 1mn of valueinsured.

Note: the insured may beheld liable for any unpaidpremium tax if the insurer(from other countries withinthe EEA or from outside theEEA accepting UK business)does not appoint a taxrepresentative in the UK



APPENDIX I: NON ADMITTED INSURANCE

Argentina

Insurers

Law No 12.988, dating from 1947, established that:

• in accordance with the terms of its Article 2, it is obligatory to insure in Argentina all persons, goods and other risks ofnational jurisdiction, which is interpreted as risks situated in the country

• risks belonging to the state, provincial and municipal authorities must be insured with Argentinean insurance companies (Article 3), and

• marine cargo import and export risks should be insured with Argentinean insurance companies (Article 4). Argentineaninsurance companies are defined as those situated in the country with at least three-fifths of the shares in Argentineanownership.

In 1994 the Ministry of Finance and Public Works and Services (Ministerio de Economia y Obras y Servicios Publicos) issuedResolution No 589 which repealed Article 4 of the law. This has been taken by most of the market to mean that insurancescovering marine cargo exports and imports may be placed directly abroad but the intention of the measure is not clear and itswording is open to more than one interpretation.

On the one hand, consultations made to the Superintendency of Insurance have elicited the verbal reply that the insuranceabroad of international imports and exports is permitted while on the other hand, legal opinion exists that the intention of theResolution No 589 is simply to allow cargo insurances to be placed with foreign insurance companies legally operating inArgentina; that is, the limitation, similar to that in Article 3, of placing business only with Argentinean insurers, is removed. Thesituation is further complicated by the doubt over whether a resolution (resolucion) can modify a law in Argentina.

On the other hand, some lawyers argue that Resolution No 589 was issued within the framework of an emergency economiclaw (Decree 2284/91) as a measure designed to help companies by recognising the de facto situation that existed of marinecargo insurances being placed abroad.

The SSN has preferred not to take any formal position on the matter and the market has been unwilling to raise the doubts inorder to demand a ruling as it might cause more problems than it would solve so an uneasy situation exists where companiesinterpret the law as they consider fit and to date the SSN has taken no action against insurers placing certain marine risksdirectly abroad.

In addition to the doubt over whether marine exports and imports may be legally insured abroad, there is no common positioneither regarding the insurance of internal transits, including those forming part of an international voyage. It is generally thoughnot universally accepted that these insurances must be placed with an authorised insurer in the local market and, if theinternational portion of the voyage is placed abroad, the internal transit must be placed locally on a separate policy.

The situation surrounding the placement of non-admitted business has been further complicated recently. It was agreed that theaviation insurances of national aviation companies (generally interpreted as domestic scheduled airlines) could be legally placeddirectly in foreign insurance markets in accordance with Decree 1.654 of 2002 and Decree 1.012 of 2006. The ArgentineanAssociation of Insurance Companies, in conjunction with the main insurance companies operating in the country, challenged thevalidity of the decrees, alleging that they were in conflict with the provisions of the Aeronautical Code and insurance legislation.

Appendix I: Non Admitted Insurance


That view was supported by the courts, which have ruled the decrees to be unconstitutional and the state has appealed thedecision, referring it to the Supreme Court. A final decision is awaited.

One exception to the non-admitted rules still holds: that exception is P&I cover which, following the disappearance of theNational Reinsurance Institute (INdeR), was authorised to be placed abroad directly by Resolution 18.077 of 1984,subsequently replaced by Resolution 22.393 of 1993. When the new reinsurance legislation was introduced, an approach forclarification was made to the SSN, which confirmed that the resolution permitting the direct placement of business overseas wasstill in force.

Local Risk Definition

A local risk is defined as being one "in the national jurisdiction" which is generally interpreted as one being located in Argentina.

Exchange Controls

No transfer of funds abroad is possible without the permission of the Central Bank and formal approval is required of the SSN inorder to obtain that. Resolution No 35.481 of 3 December 2010 updated the procedure to be followed to gain authorisation.Insurance companies are required to send to the SSN a sworn statement on the prescribed form providing details of thereinsurance contract and the beneficiary, supported by an auditor's report with more details.

A limit per company of USD 2mn per month is permitted by law. Following the introduction of the current financial and fiscalpolicies of the government, the purchase and outflow of dollars are being strictly controlled. Companies advise that it isbecoming more and more difficult to obtain permission to remit funds as the documentation and authorisation process isbecoming increasingly complex and delays of two to three months are normal.

Tax

Premiums paid overseas in respect of insurances legally contracted are tax deductible for the buyer but are subject to a highertax than insurances placed locally. If the insurer does not have an office in Argentina, the insured is responsible for payment ofthe tax.

Insurer Responsibilities

The law is silent on whether or not insurers involved in non-admitted placements have to warn buyers that they are not subjectto local supervision.

Multinationals

There does not appear to be any legislation relating specifically to multinational insurance programmes or multinational insurersand such insurances and insurers are subject to the same rules as all other insurances and insurers.

DIC/DIL

The legislation does not address the use of global difference in conditions/difference in limits covers or excess layers above aprimary local policy.

Premium Taxes

The tax authorities have authorised the placing of P&I cover directly abroad provided that the local taxes are paid on theinsurance. In the case of non-admitted placements of marine cargo insurances (doubts over the legality of which continue toexist - see the Insurers section above), and aviation insurances on scheduled airlines (recently challenged in court - see above),no local premium taxes are payable. The placement of legally authorised insurances abroad does, however, have taxconsequences in accordance with the Corporations Tax Law (Ley de Impuesto a las Ganancias) under which tax at 31.5% (35%of presumptive income of 90%) is withheld. More details may be found in the Taxation section of this report.



Buyers

Insurance buyers cannot place their business with non-admitted insurers abroad except for P&I. Doubts exist regardingwhether marine insurance on imports and exports may also be placed abroad but in practice many companies do so. Thedecrees that allowed the aviation insurances of the local, scheduled airlines to be placed on a non-admitted basis have recentlybeen declared unconstitutional in court and the case has been referred to the Supreme Court for a final decision.

Losses may be freely paid into the country under policies legally placed abroad, without tax implications for the insured.

There are no facilities established for obtaining approval from the supervisor, the SSN, for exemption from the non-admittedrules.

Intermediaries

Brokers have to be authorised to do insurance business but agents do not.

Intermediaries are not allowed to place business with non-admitted insurers. The law does not specifically authorise or prohibitbrokers from placing aviation insurances with non-admitted carriers but the decrees allowing non-admitted placements haverecently been declared unconstitutional and the case has been referred to the Supreme Court.

Brokers involved in non-admitted placements do not have to warn buyers that their insurer is not subject to local supervision.

Market Practice

There is a widespread belief that marine cargo business in general, and imports in particular, may be placed directly abroad andthe practice is not uncommon. Although the SSN has in the past given a verbal indication that it considers it legal for the cargoimports to be covered in this way, the relevant legislation is at best vague and personnel in the SSN changes so that previouslyexpressed opinions may no longer be valid. One major broker in the market advises its clients to insure all marine cargobusiness with locally registered insurers while another informs its customers that it is permissible to place the business abroad.With regard to inland transits, while most are insured under locally issued policies, the risk is included in some globalprogrammes and the certificates issued by the foreign insurer are accepted by local transport companies as proof of insurance.

In practice, several types of insurances, including international cargo imports and exports, and kidnap and ransom are placedoverseas without SSN permission. This is well known and to date the insurers have incurred no penalty.

P&I business may be placed abroad and it is market practice to do so. The legality of the placement of aviation risksabroad awaits the decision of the Supreme Court although, in practice, such risks are insured locally and fronted out of thecountry.

Fines/Penalties

In accordance with the terms of Article 2 of Law No 12.988 dating from 1947, non-admitted insurance is not permitted. Insuredsand brokers breaking this rule can be fined up to 25 times the premium paid. The law also envisages fines for companiesoperating in Argentina without authorisation from the SSN.

Fines in this connection have been applied, most recently in the case of an individual who purchased two life insurance policies,one in the US and one in the Isle of Man. In accordance with Article 2 of Law No 12.988 a fine of USD 20,210 was applied. Thisamounted to one times the annual premium, a light fine to reflect the fact that it was a first offence and the amounts had beendeclared in an income tax declaration. As far as it has been possible to determine, no fines have been applied, certainly inrecent years, in respect of the placement of international marine cargo business abroad.



Australia

Insurers

Unauthorised foreign insurers are allowed to write most classes of Australian business if approached directly by a buyer. Theymay also write a limited range of large or complex risks offered to them by Australian insurance brokers. These exempted risksare described in detail in the Intermediaries section below.

The only classes which may not be written on a non-admitted basis under any circumstances are workers' compensation,compulsory third party and builders warranty, which are either state monopolies or are restricted to domestic insurers whichhave been specifically approved by state governments. In addition, the Medical Indemnity (Prudential Supervision and ProductStandards) Act 2003 provides that medical indemnity for healthcare professionals may only be written by insurers which aresubject to prudential supervision by APRA (healthcare professionals are defined as medical practitioners, nurses, midwives,pharmacists, dentists, optometrists and other healthcare providers required to be licensed or registered in relation to theprovision of healthcare by a state or territory).


There is no statutory definition of a local risk.

Exchange Controls

There are no exchange controls which might inhibit business being placed with non-admitted insurers abroad.

Tax

In order for premiums paid to an offshore insurer to be tax-deductible for a policyholder in Australia, deemed profit tax must bededucted on 10% of the assessable gross premium, which includes the fire service levy, by the broker or policyholder. Thecurrent corporation tax rate is 30%, and the tax deduction is therefore 3%.


Insurers involved in non-admitted placements do not have to warn buyers that they are not subject to local supervision.

Multinationals

There is no legislation relating specifically to multinational insurance programmes or multinational insurers and such insurancesand insurers are subject to the same rules as all other insurances and insurers.

DIC/DIL


Premium Taxes

Australia has an extraordinarily complex system of premium taxes, full details of which are given in the Taxation section of thisreport. With the general exception of goods and services tax (GST), non-admitted policies are subject to the same array of taxesand charges as admitted policies. Taxes payable on non-admitted policies comprise deemed profits tax equivalent to 3% of thegross premium, fire service levies applicable in New South Wales and Tasmania, as well as stamp duties applicable to differentpolicies at different rates in all states and territories.

Terrorism



The Terrorism Insurance Act 2003 nullifies terrorism exclusion clauses in all commercial property, business interruption andpublic liability policies operative in Australia, including policies issued by UFIs. UFIs may reinsure their Australian terrorismliabilities (excess of a variable minimum retention) with the Australian Reinsurance Pool Corporation by paying the appropriatepremium to the pool.

Buyers

There is nothing in the legislation to prevent insurance buyers from insuring the non-compulsory classes directly with non-admitted insurers. Because of the difficulty of calculating premium taxes and other charges, however, insurance buyers arestrongly recommended to use either a local fronting insurer or a broker to ensure their fiscal compliance.

In order for premiums paid to an offshore insurer to be tax-deductible for a policyholder in Australia, deemed profit tax must bededucted on 10% of the assessable gross premium, which includes the fire service levy, by the broker or policyholder. Thecurrent corporation tax rate is 30%, and the tax deduction is therefore 3%. There is no difference in tax treatment between claimpayments received from admitted and non-admitted insurers.

Intermediaries

Insurance intermediaries (brokers or agents) have to be authorised to do business in Australia. Authorised intermediaries arethe holders of an Australian financial services licence (AFSL) or their authorised representatives.

The Corporations Act was amended with effect from 1 July 2008 to prohibit Australian financial services licence holders such asinsurance brokers from dealing in general insurance products that are not obtained from authorised insurers. According toTreasury regulations, however, businesses and consumers can still access UFIs through their brokers in cases whereappropriate insurance cover is not available from authorised insurers, provided they qualify for one of the following exemptions:

• high value insured exemption

• atypical risk exemption

• customised exemption

• foreign law exemption.

High value insureds are defined as corporations, partnerships or trusts (either as a single entity or a group of related entities)that have (averaged over the last three financial years):

• consolidated gross annual revenue in Australia over AUD 200mn (USD 181.82mn), or

• consolidated gross assets in Australia over AUD 200mn (USD 181.82mn), or

• more than 500 employees in Australia.

Atypical risks are defined as the following products, but only to the extent that they are not available from an authorised insurerin Australia on a stand-alone basis:

• nuclear

• war



• terrorism

• satellite or space

• biological risk

• medical clinical trials

• aviation liabilities

• ship owners' P&I other than for pleasure craft.

Exemptions 1) and 2) are fully defined in the Insurance Regulations 2002, allowing businesses and their advisers to self-assesstheir eligibility against the definitions.

Customised exemptions are available for businesses and consumers which do not qualify under exemptions 1) and 2) but whichstill have unique risks which cannot be placed with authorised insurers. An assessment must be made (and documented) by thebroker to determine whether a specific risk cannot be placed with an authorised insurer, having regard to the following criteria:

• a lack of market capacity

• a material difference in price

• a difference in non-price terms and conditions having a material impact on the business or consumer, and

• material benefits accruing from continuity of an ongoing relationship between a given insurer and the business orconsumer.

A broker's determination that their client qualifies for a customised exemption must be reasonable and must be based on areasonable level of investigation and market analysis. Assessment will be made at the time of negotiation, inception, renewal ormaterial change in the terms and conditions of the relevant policy.

A further exemption is allowed for an arrangement with a UFI that is required by a foreign jurisdiction.

Brokers involved in non-admitted placements have to warn buyers that their insurer is not subject to local supervision.

Market Practice

Multinational subsidiaries in Australia

Multinational subsidiaries in Australia may take out a local policy or a fronting policy, or may insure directly with their parentcompany's global programme carrier or captive abroad. Although the last option has the lowest frictional costs, it carries anumber of significant non-cost disadvantages which are detailed below.

• Australia's premium taxes are so complex that taking out a local policy or a fronting policy is the only certain way ofensuring compliance with the tax regime.

• Because of differences in time zones it can be difficult for global programme carriers to provide an effective claimsservice.



• Companies borrowing money or providing services in Australia are commonly asked to provide evidence of insurance. Acertificate of insurance issued by a local insurer is more likely to be recognised and accepted than one issued by anoffshore insurer.

• General liability policies issued in the US commonly have a primary layer of only USD 1mn with the bulk of thepolicyholder's protection provided by an umbrella policy above. This structure can be problematic for multinationalsubsidiaries working as contractors in Australia, where market practice requires a primary layer of AUD 10mn or AUD20mn (USD 9.09mn or USD 18.18mn).

As a result of these considerations, most multinational subsidiaries are written on a fronting basis.

Use of UFIs

The Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Act, whichcame into effect on 1 July 2008, has effectively prevented UFIs from writing Australian retail business through brokers orunderwriting agents. Because the exemptions to the act are so wide, however, the new legislation has had virtually no impact onthe freedom of brokers to place corporate risks in the overseas markets of their choice.

UFIs are extensively used by brokers for high-hazard corporate property and third party liability, corporate PI and excess PI andD&O business. Many high-risk corporate insurance buyers prefer to have their business written in London because themarket has a proven track record of always providing cover, regardless of the stage of the underwriting cycle. Other Australiancorporations which regard themselves as global businesses feel it appropriate that they should be insured in a global insurancecentre. Some insurance buyers simply enjoy their annual, expenses-paid visit to London.

The ease of placing business with UFIs can be judged from APRA's Intermediated General Insurance Statistics. According tothe latest available data, premiums of AUD 754mn (USD 777.32mn) were placed with UFIs by brokers in the second six monthsof 2012. Around 73% of this business was placed in London or Singapore. Most of the business placed with UFIs was fire orindustrial special risks (ISR) and was placed outside Australia on the basis of the high value insured exemption.

Fines/Penalties

According to the Insurance Act, the maximum penalty for an individual carrying on insurance business without a licence is 60"penalty units" under the Criminal Code. For a company, the maximum penalty is up to five times the penalty applicable to anindividual. The value of a penalty unit is determined each year by the Australian Treasury.

The Financial Sector Legislation Amendment (Discretionary Mutual Funds and Direct Offshore Foreign Insurers) Act, whichcame into effect on 1 July 2008, gave APRA additional powers to investigate, prosecute or obtain injunctions againstunauthorised purveyors of insurance products.

ASIC keeps a close watch on dubious foreign insurers advertising for business in Australia. In 2004, for example, ASIC obtainedcourt orders prohibiting Cayman Islands insurer Trans Pacific Insurance Corporation and its underwriting agent TritonUnderwriting Insurance Agency from conducting business in Australia without an Australian financial services licence. ASIC alsoobtained a court order winding up Solomon Islands insurer International Unity Insurance (General) Ltd (which claimed to havereinsurance in Bosnia and Serbia) and its Australian agent International Unity Insurance.



Austria

Insurers

Compulsory insurances are not specifically mentioned in connection with non-admitted insurance.


A local risk is defined as an insurance contract, where the legally binding declaration of intention has been given in Austria, aninsurance contract where the insured resides in Austria or an insurance contract completed with the involvement of anintermediary. This definition does not apply for risks that are not located in Austria in accordance with Art 2, Par 2 of the BGBlNo 89/1993, which implemented the European Council Directive 90/619/EEC of 8 November 1990.

Exchange Controls

Currency exchange control is not an issue for non-admitted placements.

Tax

Premiums paid overseas are not tax deductible for the buyer, unless the policy falls under "Korrespondenzversicherung"(essentially a cover bought abroad on the written initiative of the buyer).


Insurers involved in non-admitted placements are not legally required to warn buyers that they are not subject to localsupervision.

Multinationals


DIC/DIL


Premium Taxes

All premium taxes set out in the Taxation section of this report are due on premiums for non-admitted (and freedom of services)insurance. They are payable by the insured.

Buyers

There is nothing in the legislation to prevent insurance buyers from placing their business with non-admitted insurers abroad.

The Austrian law is designed to protect the policyholder. It does not prevent an individual or legal person from seeking insurancecover abroad (Korrespondenzversicherung). In these cases the insured waives the protection provided by the Austriansupervisor. The initiative of the purchase, however, must come from the insured in writing.

Intermediaries

Insurance or reinsurance brokers are required to be licensed in Austria. Insurance contracts with insurers abroad are alwaysdeemed to have been concluded in Austria, if a professional intermediary is involved in its arrangement (Art 1, Par 2, VAG).



A few years ago the question of how Korrespondenzversicherung, as defined above, is to be treated in connection withintermediaries was considered by the Austrian supervisor. In view of the complexity of the issue, and the difficulties involved inexamining it on a case by case basis it was decided that Austrian intermediaries are not allowed to place business with non-admitted insurers without exception. In the case of a foreign parent company purchasing cover from a non-admitted insurer onbehalf of an Austrian subsidiary, Korrespondenzversicherung applies and an Austrian intermediary is allowed to service thatcontract.

Intermediaries operating in any EU/EEA country must be registered with their home authority and may do business in othermember countries by means of freedom to provide services.

Market Practice

The market uses fronting in order to ensure that cover is provided without gaps, particularly for liability policies.

Fines/Penalties

Article 110 of VAG states that companies writing insurance policies without the necessary licence can be subject to a fine of upto EUR 50,000 (USD 65,789).

An Austrian intermediary, who gets involved in purchasing cover on behalf of an Austrian insured with a non-admitted insurer,can be subject to a fine of up to EUR 50,000 (USD 65,789).

Belgium

Insurers

The following insurances may be written on a non-admitted basis by non-EEA insurers who comply with GATS:

• marine transportation

• aviation

• spacecraft (including satellites)

• international goods in transit.

For compulsory motor third party and workers' compensation insurance, EEA insurers operating under a freedom of servicesbasis must join the admitted market bodies (motor compensation bureau and motor and work accident guarantee funds) in orderto be able to offer coverage.


Under EU law, a risk is located in Belgium if the insurance:

• relates to buildings and/or their contents and the property is located in Belgium

• relates to a vehicle which is registered in Belgium (this includes ships and aircraft)



• covers holiday or travel risks of up to four months duration and the policy is taken out in Belgium.

If the above do not apply, the risk is still considered as being located in Belgium if it covers a policyholder who is either:

• an individual who is habitually resident in Belgium or

• a business with its business establishment to which the policy relates in Belgium.

Exchange Controls

Currency exchange control is not an issue for non-admitted placements because there are no exchange controls.

Tax

Premiums paid overseas are tax deductible for the buyer provided that the insurances have been placed in accordance with thelegislation in force and all premium taxes and surcharges due have been paid locally.



Multinationals


DIC/DIL

Legislation does not address the use of global difference in conditions/difference in limits covers or excess layers above aprimary local policy.

Premium Taxes

All premium taxes set out in the Taxation section of this report are due on premiums for non-admitted insurance (and businesswritten under freedom of services). The tax representative of the foreign insurer is responsible for collection of the premium ifthe insurer concludes the contract without the intervention of a broker or other intermediary residing in Belgium. In the absenceof authorisation for a tax representative or in the absence of a broker or any other intermediary residing in Belgium and whenthe insurer not established in Belgium has failed to pay the tax, then the policyholder is responsible.

Buyers

Belgium permits a local policyholder in certain circumstances to place insurance with a third country (non-EEA) insurer on afreedom of services basis, provided the insurer's home country complies with the OECD Code of Liberalisation of CurrentInvisible Operations, dated 15 April 1994 last amended in 2004, and provided the insurance buyer has taken the initiative toenter into the contract. The buyer is not regarded as having "taken the initiative" if it resulted from a contact from the insurancecompany or an individual mandated by the insurer. The eligible classes of business, as outlined in Royal Decree dated 22February 1991- Article 30 (4) are as follows:

• EU category 4 - railway rolling stock

• EU category 5 - aircraft

• EU category 6 - ships (on the sea, lakes, rivers or canals)



• EU category 7 - goods in transit (including baggage)

• EU category 11 - aircraft liability

• EU category 12 - ship liability.

In such cases, the third country insurer does not need to obtain prior NBB authorisation.

Losses under legally issued non-admitted policies may be freely paid into Belgium, without any adverse tax implications.Payments under illegally placed insurances could not be made as claims payments and might have serious tax implications.

Although the law contemplates the possibility of an insured approaching non-EEA insurers directly to place the insurance on anon-admitted basis, enquiries suggest that in practice it does not happen as a full range of insurances are available in the localmarket and there is no justification to seek cover outside the system.

Intermediaries

Intermediaries (brokers or agents) have to be authorised to do insurance business in Belgium.

Intermediaries are not allowed to place business with non-admitted third-country (non-EEA) insurers, with the exception of thefollowing classes of business:

• marine transportation

• aviation

• spacecraft (including satellites)

• international goods in transit.

Intermediaries involved in non-admitted placements with third country insurers do not have to be specially registered.



Market Practice

It is understood that the Belgian market generally complies with the legislation. The supervisory authority, NBB, is vigilant and ininstances where companies have been operating without appropriate authorisation, the supervisory authority has alerted itsmembers and the public appropriately.

Given the local presence of several major international reinsurers, ready access to the Lloyd's market, and the ability to issuefronting policies, instances where cover or capacity cannot be secured are rare. There are no restrictions on fronting and whererequired risks may be fronted locally and reinsured abroad.

Restrictions on non-admitted insurance only apply to third country insurers not having an establishment within an EEA memberstate, and whilst US non-admitted insurers occasionally have need to provide coverage in Belgium, local sources advise thatthey tend to comply with the legal requirements; it would seem, however, that the same is not always the case for insurers fromAsia and the Far East in particular.



Brokers are increasingly recommending local policies be issued for Belgian exposures, rather than by way of freedom ofservices or captive arrangements, given that the new terrorism insurance law requires that "non-admitted" insurers pay suchclaims even if the insurer considers them to be uninsured.

Fines/Penalties

Should an illegal non-admitted contract be written, it is void, although if the insured has acted in good faith then the contract isenforceable. Heavy penalties apply in the case of deliberate infringements.

Insurance companies pay fines, and in some cases can be subject to imprisonment. The NBB will determine the amount.

Brazil

Insurers

The following insurances are presently exceptions to the general prohibition on non-admitted placements:

• insurance coverage not available in the Brazilian market (or where there is a lack of interest in providing coverage)

• temporary insurance coverage for risks abroad when the insured is an individual residing in Brazil (eg travel insurance)

• insurance subject to international treaties approved by the Brazilian Congress (eg maritime agreements)

• insurances of hull, machinery and liability in respect of vessels registered with the RBNA, according to Paragraph 2,Article 11 of Law No 9432 of 9 January 1997 (in cases where the Brazilian market does not offer prices compatible withthe international market)

• insurance legally placed abroad at the time when Law 126/07 came into effect.

Insofar as exception (1) above is concerned, in the unlikely event of insurance coverage not being available in Brazil, or therebeing a lack of interest in providing it, Circular No 392 dated 16 October 2009 establishes that insureds and/or insurancebrokers may at any time be required by SUSEP to present copies of submissions made to at least 10 insurance companies.Additionally, SUSEP may also request copies of the corresponding declinations from insurers, including the reasons fordeclining the risk, and a copy of the submission to the proposed non-admitted insurer on the same terms as the Braziliansubmission, together with a sworn certified translation into Portuguese. Declinations resulting from insufficient informationprovided will not be viewed by SUSEP as valid.

Where there are fewer than 10 companies operating in the relevant class of business, insureds and/or insurance brokers mustconsult all companies that do write it.

Circular No 392/09 also provides for obtaining a negative letter issued by a professional class association, as long as such classassociation is recognised by SUSEP, in accordance with requirements contained in the circular and included in SUSEP's list ofacknowledged professional class associations published on its website. In such cases, the professional class association mustconsult all Brazilian insurance companies, within one working day from the request for quotation by the insured, and theassociation may only send a negative letter, within three business days, if none of the consulted insurers showed interest inaccepting the risk, or if there were only negative responses.



CNSP Resolution No 241 effective from 1 December 2011 established that where there is a total or partial lack of reinsurancecapacity from the companies duly licensed with SUSEP, ie local, admitted and occasional reinsurers, then the balance of riskmay be offered to non-admitted reinsurers, subject to certain conditions. Local sources feel, however, that with over 100reinsurers now authorised, a lack of capacity is unlikely.

Insofar as exception (4) above is concerned, where local pricing for marine hull, machinery and liability insurance for vesselslisted in the RBNA proves to be initially uncompetitive with overseas markets, SUSEP may require insureds and/or insurancebrokers to provide the following information:

• a copy of submissions to at least five Brazilian insurance companies and the quotations received

• a copy of the submission to the non-admitted insurer (based on the same terms and conditions as presented to the localmarket) together with a sworn certified translation into Portuguese

• the terms and conditions offered by the non-admitted insurer (which must be presented to the Brazilian insurancecompanies originally consulted for reconsideration), and a copy of their respective formal declinations presented.

Both SUSEP and CAMEX, which formulates and co-ordinates Brazilian trade policy, have clarified that imports into Brazil on aCIF or CIP basis may be insured overseas. Similarly, exports from Brazil are free from any restrictions and insurance can beplaced by the buyer abroad or locally.


There does not appear to be any definition of local risk.

Exchange Controls

Currency exchange control is a major issue for non-admitted placements because it is illegal to remit money abroad to pay thepremium of non-admitted policies. Furthermore, no money can be officially received in Brazil as indemnity under non-admittedpolicies.

Tax

Premiums paid overseas are not tax deductible for the buyer.



Multinationals


DIC/DIL

Legislation does not address the use of global difference in conditions/difference in limits covers or excess layers above aprimary local policy. Such coverages are viewed as illegal, however, although that does not mean to say that they are notissued. The consequences of an indemnity being paid under such a contract to an insured in Brazil could be severe.

Premium Taxes

Reliable local sources advise that non-admitted insurance premiums paid overseas are subject to a 25% tax, although Braziliantaxation law is not entirely clear on the subject. One leading international broker advises its clients to consult their own taxadvisers in such cases, given the lack of clarity.



Buyers

Insurance buyers cannot place their business with non-admitted insurers abroad, except in the very limited circumstancesoutlined under the heading "Insurers" in this section.

No money can be officially received in Brazil as indemnity under non-admitted policies.

Intermediaries

Intermediaries (ie brokers) have to be authorised to do insurance business. A broker is not legally required to intermediate inorder for an insurance contract to be entered into, but when insurance policies are sold without the involvement of brokers, (ieconducting direct sales or making use of alternative distribution channels), the insurance company must pay a commission, atthe same rate it would pay to a broker, to the National School of Insurance (Fundacao Escola Nacional de Seguros -FUNENSEG) for the maintenance of an educational fund.

Intermediaries are not allowed to place business with non-admitted insurers unless regulatory authority has been granted.


Market Practice

The strict control exercised over the market by the supervisory authority, SUSEP, and the potential penalties for non-compliance, mean that insurers take care to ensure that coverage is placed in accordance with local regulations.

Given the size of the Brazilian market' and the fact that, since the passing of Law No 126/07 in January 2007, over 100reinsurers (including Lloyd's) are now legally authorised to operate there, the need to resort to non-admitted markets for non-lifebusiness is limited. One leading broker advised that the only instances in recent years where a non-admitted placement hadbeen required related to a small number of complex professional indemnity exposures. Some credit insurance risks are alsothought to have required non-admitted placements.

Fines/Penalties

CNSP Resolution No 243 dated 6 December 2011 sets out revised administrative penalties applicable to insurance,reinsurance, capitalisation, pension and brokerage activities, as well as the rules on SUSEP's punitive procedures. Under theseindividuals or legal entities that violate any of the regulations in force, including those relating to non-admitted business, aresubject to the following sanctions or penalties, which can be applied cumulatively:

• warning

• a fine that can vary from BRL 5,000 (USD 2,200) to BRL 1mn (USD 440,000) - previously the maximum was BRL 17,000(USD 7,500)

• a fine in an amount equal to the (re)insured amount in the event of insurance, reinsurance or coinsurance transactionsbeing made without the relevant authorisations

• 30 to 180 days suspension

• prohibition from occupying a position or a job in public service companies or in state-owned or state-controlledcompanies and their respective subsidiaries, pension companies, capitalisation companies, financial institutions,insurance and reinsurance companies for a period ranging from two to 10 years



• cancellation of an insurance broker's licence (whether an individual or legal entity)

• cancellation of the authorisation to operate.

Although SUSEP adopts a hard line against unauthorised foreign insurers and brokers selling insurance in Brazil (where theycan be traced), most of such companies are said to be operating in the life insurance sector. In May 2012 SUSEP confirmed aBRL 11bn (USD 5.5bn) fine on one US life insurer, reported as roughly the amount of sums assured on policies issued over aperiod of 10 years. The regulator is also taking a hard line on the illegal activities of local insurance "associations" operatingmainly in the motor insurance sector.

While fine arts and kidnap and ransom insurance have been mentioned in the past in connection with non-admitted placementsin the non-life sector, any such placements are insignificant in the context of total premiums written.

Canada

Insurers

The following compulsory insurances may not be placed on a non-admitted basis unless cover is not available locally at anyprice:

• motor third party bodily injury and property damage and automobile accident benefits coverage

• workers' compensation (state scheme)

• aviation liability

• marine passenger liability for vessel operators

• professional indemnity for insurance brokers, investment brokers, real estate brokers, fund managers, land surveyors,doctors, lawyers, architects and engineers

• pharmacists and paralegals in Ontario

• insurances covering the cross-border shipment of hazardous materials.

Most provinces do not allow the placing of obligatory insurances with insurers operating outside the province.

Insurers that are not registered in Canada may not solicit business in the country directly or through an intermediary, with theexception of marine insurance, personal accident and sickness, life, contracts of reinsurance and for insurance coverage notavailable in Canada. Marine insurance is deemed to include hull, liability and cargo insurance, comprising both imports andexports.

Insurers are, however, free to write Canadian business if approached by the insured.


There is no definition of what constitutes a local risk in federal legislation or, as far as it has been possible to determine, inprovincial legislation. On a federal level, the concept has ceased to have much significance as the most important factor in



determining how a risk should be handled from the regulatory point of view is where the risk is accepted and not where it islocated in accordance with the interpretation of "insuring in Canada a risk" established by Part XIII of the Insurance CompaniesAct. It retains some importance from the point of view of provincial legislation.

Exchange Controls

Currency exchange control is not an issue for non-admitted placements and funds are freely transferable into and out of thecountry, and between provinces.

Tax

It is understood that premiums paid overseas in accordance with the legislation are tax deductible for the buyer provided thatthe due premium taxes have been paid.


In British Columbia and Alberta, the broker needs the client's permission to place business with an unlicensed carrier; in otherprovinces the broker must simply inform the client that it will be done and explain the risks involved, including that the carrier isnot supervised by the local supervisory authority and that there may be difficulties in claims settlement.

Multinationals


DIC/DIL


Premium Taxes

The taxes detailed below are due on premiums for non-admitted insurance. For full details, see the Taxation section of thisreport.

• In respect of risks located in Canada placed with a non-admitted company outside Canada or through a non-admittedbroker, an excise tax of 10% is payable. An exemption is granted for marine, personal accident and sickness, life,contracts of reinsurance and for insurance coverage not available in Canada. A potential exemption applies for nuclearbusiness but it must still be requested.

• When a foreign unlicensed broker is involved in the handling of a risk in addition to a licensed Canadian broker, providedthat the latter handles the local placement, is shown on the policy and places the business with a licensed Canadianinsurer, the excise tax will not apply.

• In respect of risks placed outside the province where the insurer is licensed, the same local retail sales taxes apply asare paid for risks placed within the province. These local taxes are charged even if an exemption from the excise tax isobtained.

• Provincial taxes are charged also even if business is placed outside the province because the cover is not availablelocally.

• Premium taxes ranging between 2% and 50% also apply to non-admitted insurances.



• The provincial premium taxes and federal excise tax are cumulative.

It is the responsibility of the broker to notify the authorities that unlicensed insurance has been placed and the insured mustinclude details on his or her tax return and pay the relevant taxes.

Buyers

There is nothing in the legislation to prevent insurance buyers from placing their business with non-admitted insurers abroad orin a different province, with the exception of the compulsory insurances.

Claims under policies may be freely paid into Canada without any tax implications, provided that the premium payments weredeclared and the relevant taxes on them paid.

To obtain an exemption from excise tax based on insurance coverage not being available in Canada, a submission must bemade to the Canada Revenue Agency (CRA) showing five letters of declinature from licensed insurers or a lack of marketcapacity. The reason for the declinature of the risk may not be price-related. In some cases, the CRA has made its owninvestigation into the availability of cover locally and refused permission to place the business overseas on the strength of itsfindings.

Letters of declinature are also required by the provincial supervisor in order to sanction the placing of business with anunlicensed carrier. The number of letters is unspecified in some provinces and fixed at three in others. Some provinces willaccept an excessively high price as a reason for placing the business outside the licensed market.

Intermediaries

Intermediaries (ie brokers or agents) have to be authorised to do insurance business and they are licensed and regulated atprovincial level. A reciprocal licensing system for agents and brokers has been adopted. The model provides that the hostprovince will accept most of the licensing requirements established by the home province but may also request additionalrequirements

Intermediaries are not allowed to place business with non-admitted insurers except in Newfoundland, Prince Edward Island,New Brunswick, Quebec, Yukon, Manitoba and Alberta; in all of these provinces a special licence must be obtained to do so.The licences are for individual brokers, except in Newfoundland where a corporate licence exists. In British Columbia andAlberta, the broker needs the client's permission to place business with an unlicensed carrier; in other provinces the broker mustsimply inform the client that it will be done and explain the risks involved, including that the carrier is not supervised by the localsupervisory authority and that there may be difficulties in claims settlement. In Alberta, a broker is not permitted to suggest to aclient that he or she goes to the unlicensed market; the proposal must come from the client.

New reporting requirements have been established for brokers in British Columbia wishing to place insurance with anunlicensed carrier. Prior to carrying out the operation the broker must send details to the Insurance Council of British Columbia(ICBC) and information must also be provided to the client of the financial strength rating of the insurer, the course of action thatis available if a claim is refused or if the insurer becomes insolvent, and the requirement for local premium taxes to be paid. Inaddition, details of the financial transaction must be given within 30 days of the end of each quarter to the Superintendent ofFinancial Institutions.

Intermediaries involved in non-admitted placements have to be registered with the local provincial regulatory authorities inaccordance with local legislation.

Prior to placing insurance with a non-admitted insurer in another Canadian province, brokers are required to approach the localmarket and obtain letters of declinature. The number of declinatures is specified as three in some provinces and unspecified inothers.



The involvement of an unlicensed intermediary will give rise to the application of the 10% excise tax even if the business isplaced with a registered insurer. This rule had wide-ranging implications as it affected cases where there was a foreign,multinational broker involved along with its local office so that, if a foreign broker outside Canada was contacted regarding theplacement of business in respect of the Canadian subsidiary of a foreign corporation and that broker handed the arrangement ofthe local insurances over to a Canadian broker (even its own subsidiary licensed to operate in Canada), federal excise tax waspayable on the premium. Now, however, Canada Revenue Authority has agreed that no excise tax will be payable provided thatthe locally registered broker handles the placement of the insurances in Canada, is mentioned on the policy and places thebusiness with a Canadian-licensed carrier.

Another area of concern to brokers exists in British Columbia where in 2009 the provincial regulator introduced a reporting form(Placement of Insurance with Unauthorized Insurers Return) requiring brokers to include as premium any fees they obtain forhandling an unlicensed insurance and pay the premium taxes on them. The situation has never been regulated and no furtherexplanation has been offered by the regulator FICOM. Although the introduction of the measure gave rise at first to a flurry ofinspection activity, it has now died down and there appear to have been no recent inspections attacking the situation.

Market Practice

Canada is such a diverse and mature market that it is very rarely necessary to deviate from established practice in placingbusiness. The admitted market is large and the non-admitted market is well established, operating through managing generalagencies that have binding facilities available for most classes of business. Fronting arrangements are available but are rarelyneeded as most multinational insurers are represented or have access to the Canadian market.

Despite the taxes payable a large volume of business is placed on a non-admitted basis.

Fines/Penalties

Penalties apply if the excise tax or provincial taxes are evaded or paid late and if business is solicited by an unlicensed insureror broker. The federal government and most provinces apply interest and some fines, examples of which follow:

• Canada Revenue Agency - 5% penalty plus interest compounded daily on the outstanding tax if the return is not filed bythe due date of 30 April

• Quebec - the penalty is twice the amount of the unlicensed tax

• Alberta - a penalty of up to 50% of the premium

• British Columbia - 5% of the tax up to CAD 500 (USD 490) plus interest charges

• Saskatchewan - 10% of the tax up to CAD 500 (USD 490) plus interest for the premium tax, and a fine of CAD 500 forlate filing up to 10 days and CAD 10 (USD 10) per day thereafter

• Ontario - the actual tax due plus accumulated interest at the latest published rate.



China

Insurers

Marine and aviation

China's World Trade Organisation (WTO) commitments allow the non-admitted insurance of "international marine, aviation andtransport insurance". This commitment has not been incorporated in the Insurance Law, however, and the phrase "internationalmarine, aviation and transport insurance" has not been further defined. The official position seems to be that international cargomay be written on a non-admitted basis but not marine and aviation hull or liabilities. No legal objection has yet been raised tonon-admitted insurers covering Chinese exports which are shipped on an FOB basis.

Marine P&I is outside the scope of the Insurance Law and is therefore not covered by its prohibition of non-admittedinsurance. Some Chinese ship-owners are said to prefer the international clubs to the Chinese P&I Club, with the resultthat much P&I insurance is arranged abroad, often through visiting UK brokers. Many ship-owners have foreignsubsidiaries and can circumvent China's foreign exchange regulations by paying their premiums from their overseas offices.

Business restrictions within the PRC

As well as the prohibition of non-admitted foreign insurance, there are also geographical restrictions on the writing of businesswithin China itself. Companies are authorised on a branch-by-branch basis, and branches are generally not allowed to coverrisks outside their designated business areas (in other words, a branch licensed for Shanghai may not write a risk situated inneighbouring Jiangsu province). This is particularly relevant for foreign insurers, which are currently limited to a small number ofcities and provinces. Branch offices may only insure risks outside their designated business areas in the following cases:

• large-scale risks, defined as enterprises with an asset value in excess of CNY 150mn (USD 24.08mn) and an annualpremium in excess of CNY 400,000 (USD 64,205)

• inland cargo

• coinsured risks

• master policies covering all the properties and liabilities of a single enterprise, subject to the following conditions:

The annual premium of CNY 400,000 referred to above is the aggregate premium paid by an enterprise for all types ofinsurance, including motor and insured employee benefits. This means that a foreign branch may issue a nationwide policy witha premium of only, say, CNY 10,000 (USD 1,605) provided the client company is paying at least CNY 390,000 (USD 62,600) forits other policies.

Local risk definition

A local risk is defined as "legal persons and other organisations taking out insurance within the territory of the PRC".

Exchange Controls

The CNY is a non-convertible currency, and permission is required from the State Administration of Foreign Exchange (SAFE)to buy foreign currency and remit it abroad. Permission would not be granted for illegitimate foreign insurance transactions.

Tax

It seems unlikely that premiums paid for illegal foreign insurance would be allowable against corporation tax in China as alegitimate business expense.



Insurer responsibilities

Insurers involved in non-admitted cargo business do not have to warn buyers that they are not subject to local supervision.

Multinationals


DIC/DIL


Premium taxes

In theory, the insured is required to withhold 5.5% business tax from premiums due to non-admitted insurers in respect of importcargo insurance (business tax has been temporarily waived on export cargo insurance). Premium taxes are not an issue for anyother business class because non-admitted insurance is not allowed.

Buyers

Commercial insurance buyers cannot place their business with non-admitted insurers abroad except for international marinecargo.

Some foreign investors arrange limited local policies and cover the balance of risks through a non-admitted DIC/DIL policy. Thedrawback with this arrangement is that foreign currency payments into China cannot be converted to local currency without thepermission of the SAFE. A large non-admitted claim payment would therefore attract the attention of the authorities and mightbecome liable to corporation tax in the hands of a local subsidiary.

Intermediaries

Insurance intermediaries such as brokers and agents are not allowed to do business in mainland China without beingauthorised by the China Insurance Regulatory Commission. This prohibition also applies to intermediaries licensed in Taiwan,Hong Kong or Macao, which are not allowed to do business in mainland China without local authorisation.

According to the Provisions for the Regulation of Professional Insurance Agencies and the Provisions for the Regulation ofInsurance Brokerage Organisations, both of which came into force on 1 October 2009, intermediaries are not allowed torepresent, or place business with, non-admitted insurers. Article 2(3) of the CIRC's Notice on Issues Relevant to Banning IllegalCommercial Insurance Institutions and Illegal Commercial Insurance Business Activity (2008) lists activities that are deemedillegal if undertaken by an intermediary without the CIRC's approval. These include:

• selling a policy issued by an unauthorised foreign insurer

• facilitating the sale of an illegal foreign insurance policy

• arranging for a foreign insurance company to hold a presentation of insurance products

• promoting a conference about insurance products in China

• arranging for employees of a foreign insurance company to sell a foreign policy in China



• arranging for a Chinese resident to apply for a foreign insurance policy in China

• arranging for a Chinese resident to go abroad to apply for a foreign policy.

Market Practice

There are widely differing approaches to insuring foreign multinational risks in China, which range from 100% local cover to100% non-admitted insurance. Because of increasing compliance awareness, however, particularly as regards premium taxes,the current trend is away from non-admitted and towards local coverage, sometimes with a non-admitted DIC/DIL policy on top.Many local policies are written on a fronting basis, though the amount of premium ceded to the global programme carrier isusually less than 80%.

Some of the factors favouring local coverage are detailed below.

• Local premium rates and deductibles are far below international benchmark levels. Any newly established foreign-invested enterprise which is part of a global programme will immediately be approached by local insurers and brokersoffering at least a 50% renewal discount.

• There is enough local capacity for almost any foreign-invested property risk.

• Although only few of them have been rated by the international rating agencies, the leading domestic insurers haveincreasing financial and technical credibility.

• Pure fronting policies are frowned on by the CIRC.

• There is increasing realisation that a non-admitted D&O policy will not cover directors' local legal defence costs.

• The CIRC is said to be quite assertive in policing the admitted/non-admitted legislation. In particular, an on-siteinspection of a broker's office may turn up file references to non-admitted policies.

• Chinese tax audits are very rigorous. A large non-admitted claim payment might therefore become liable to local tax,even if an attempt has been made to disguise it as a capital injection.

The main reason for not relying purely on a local policy is the lack of clarity in many wordings and the alleged unwillingness oflocal insurers to pay claims. Some Japanese investors are therefore said to have two property policies for their Chinese assets:one issued in China for compliance purposes, and one issued back in Japan as a "fall-back" in case the Chinese insurer fails tohonour a large claim.

Fines/Penalties

There is no specific legal penalty for enterprises which place their business directly abroad.

According to Article 142 of the Insurance Law, "whoever engages in illegal insurance activities shall be investigated for criminalresponsibility according to the law. If the offence does not constitute a crime, the offender's illegal gains will be confiscated and afine imposed by the CIRC of between one and five times his illegal gains. If there is no illegal gain or the illegal gain is less thanCNY 200,000 (USD 32,103), a fine of CNY 200,000 to CNY 1mn (USD 32,103 to USD 160,514) will be imposed". (Translationprovided by a commercial law firm.)



An intermediary selling a policy on behalf of an unauthorised foreign insurer is deemed to be operating an illegal insurancebusiness in China and is therefore liable to the same punishment as an unauthorised insurer.

The CIRC has launched a number of "rectification" campaigns over the years against unauthorised foreign intermediaries.Chinese insurers and brokers feel no compunction about reporting their business rivals to the CIRC, and this helps theauthorities to enforce the admitted/non-admitted regulations. The main penalty for foreign insurance companies which write non-admitted policies for Chinese residents is the curtailment of their business expansion plans in mainland China. The CIRC'sregulations on the representative offices of foreign insurers explicitly state that if a representative office engages in illegalactivity, this will be taken into account if its parent subsequently applies for a China insurance licence.

France

Insurers

The following insurances are exceptions to the general prohibition on non-admitted placements:

• marine and aviation risks.


A local risk is defined in Article L310-10 of the code as "the direct risk of a person, an object or a responsibility situated inFrench territory".

Exchange Controls

Currency exchange control is not an issue for non-admitted placements because approval of remittances is not required.

Tax

It is not clear whether premiums paid to non-admitted insurers are tax-deductible for the buyer.


It is not clear whether insurers involved in non-admitted placements are required to warn buyers that they are not subject tolocal supervision.

Multinationals

There does not appear to be any legislation relating specifically to multinational insurance programmes or multinational insurers,and such insurances and insurers are subject to the same rules as all other insurances and insurers.

DIC/DIL


Premium Taxes

All premium taxes set out in the Taxation section of this report appear to be due on premiums for non-admitted insurance andfor business written under freedom of services provisions. They are payable by the insured.



Buyers

Insurance buyers cannot place their business with non-admitted insurers abroad except for marine and aviation risks.

The control authority, the ACP, determines whether an insurance cover can or cannot be found among authorised insurers. If thecover cannot be found locally, the insurance may be placed abroad. Application can be made therefore for an exceptional case,but most risks can be written in France by French carriers.

French insurers consider it extremely inadvisable to insure a French-located risk abroad and then repatriate funds to Franceafter a loss as there could be lengthy investigations by tax and other authorities.

Intermediaries

Intermediaries (brokers or agents) are required to be authorised to do insurance business.

Intermediaries are only allowed to place business with non-admitted insurers if the risk is marine or aviation, or cannot bewritten by a locally authorised insurer.

Intermediaries involved in non-admitted placements are not required to be specially registered.

Brokers involved in non-admitted placements are not required to warn buyers that their insurer is not subject to localsupervision.

Intermediaries operating in any EEA state must be registered with their home authority and may do business in other membercountries by means of freedom to provide services.

Market Practice

It is understood that the French market complies with the legislation. Market participants report increasing use of locallyadmitted cover, as multinational corporations become more concerned about respecting the rules. Fronting is freely used onlarger cases.

Foreign construction firms working in France are often reminded that they need locally admitted cover for the risks that it isobligatory to insure in France, such as decennial liability and "dommages ouvrage". Directors' and officers' liability should alsobe insured in France, largely due to the fact that a claim settlement under an overseas policy could appear to be an illegalpayment benefitting an individual executive.

Fines/Penalties

Foreign companies not incorporated in France that are writing insurance illegally can be fined up to 3% of turnover. Otherpenalties apply to intermediaries that place business with non-admitted companies, including fines of up to EUR 15,000 (USD18,700), and/or prison sentences of up to three years. The business may also be wound up, but the law provides thatpolicyholders would retain the same protection as if the business had been carried out legally.



Germany

Insurers

Compulsory liability insurances may not be placed on a non-admitted basis. Article 113, Para 1 of the Insurance Contract Actstates that a liability insurance cover which is taken out due to a legal requirement can only be provided by an insurancecompany licensed to write policies in Germany.

The VAG commentary lists the following insurances which may be placed on a non-admitted basis:

• ocean and inland marine hulls

• aviation risks

• goods in transit

• railway rolling stock.


The German legislation is focused on consumer protection and thereby defines the entities requiring permission to conductinsurance in Germany rather than the type of risk whose insurance coverage would be subject to supervision. Another focus isto ensure German tax revenue. Therefore the only local risk definition Axco is aware of is covered in the tax legislation.According to the insurance tax law (Versicherungssteuergesetz,VerStG, Art 1) a local risk is defined as real estate, buildings,construction and moveable property inside buildings located in Germany, motor vehicles registered in Germany and travel riskswith a duration of less than four months if the policyholder lives in Germany.

Exchange Controls

Currency exchange control is not an issue for non-admitted placements because there are no currency exchange restrictions inGermany.

Tax




Multinationals

There does not appear to be any legislation relating specifically to multinational insurance programmes or multinational insurersand such insurances and insurers are subject to the same rules as all other insurances and insurers

DIC/DIL


Premium Taxes

All premium taxes set out in the Taxation section of this report are due on premiums for non-admitted insurance. They arepayable by the insured. For EU insurers working on a freedom of services basis, the tax must be paid to a nominated central



revenue office in Germany. For non-EU insurers the policyholder is liable to pay the tax unless a premium agent has beennominated.

Buyers

There is nothing in the legislation to prevent insurance buyers from placing their business with non-admitted insurers abroad.The German law is designed to protect the policyholder. It does not stop an individual or legal person from seeking insurancecover abroad (Korrespondezversicherung). In these cases the insured waives the protection provided by the Germansupervisor. The initiative of the purchase, however, must come from the insured, not the insurer. With regards to compulsoryinsurance Article 113, Para 1 of the Insurance Contract Act states that a liability insurance cover which is taken out due to alegal requirement can only be provided by an insurance company licensed to write policies in Germany.

The insurance tax law (Versicherungssteuergesetz VerStG) states in Article 1 that premium tax is payable for insurancepremiums for real estate, buildings, construction and moveable property inside buildings located in Germany, for motor vehiclesregistered in Germany and travel risks of a duration of less than four months if the policyholder lives in Germany. This impliesthat premium tax is payable for policies with unregistered insurers as well. Market sources report that there do not appear to beany specific guidelines for tax authorities to follow in the case of worldwide insurance programmes.

There does not appear to be any set procedure for supervisory approval for specific cases. The non-existence of appropriateinsurance cover locally is the only exception to the licensing requirement. In these cases foreign insurers would be allowed tomarket their cover in Germany.

Intermediaries

According to Paragraph 34d of the Trade Law (Gewerbeordnung) intermediaries have to be authorised to do insurancebusiness.

German intermediaries are not allowed to place business with non-admitted insurers without exception. In the case of a foreignparent company purchasing cover from a non-admitted insurer on behalf of a German subsidiary, "Korrespondenzversicherung"applies and a German intermediary is allowed to service that contract.

Intermediaries operating in any EEA state (any EU member state, Iceland, Liechtenstein or Norway) are required to beregistered with their home authority and may conduct business in other EEA states under freedom to provide services providedthat they have made the necessary application by informing the supervisory authority in their home country.

Market Practice

In practice, it is understood that global policies which include risks located in Germany are issued by insurers located outsidethe EEA.

Fines/Penalties

Article 140 Para (1) of the VAG provides that unauthorised operators of an insurance business shall be punished byimprisonment of up to three years or by a suitable fine.

Article 144a Paras (1) (2) and (3) provide that any intermediary making contracts with unauthorised operators of an insurancebusiness may be punished by a fine of not more than EUR 100,000 (USD 133,333).



Hong Kong

Insurers

The following compulsory insurances may not be placed on a non-admitted basis:

• employees' compensation

• motor third party bodily injury

• marine liability insurance for local vessels.

Compulsory PI for trustees of mandatory provident funds may be written on a non-admitted basis, though potential insurersmust "satisfy a minimum credit rating on their ability to pay claims as determined by a credit rating agency approved by theInsurance Authority".


The law does not define a local risk.

Exchange controls

There are no exchange controls which might inhibit business being placed with non-admitted insurers abroad.

Tax

Insurance premiums are tax deductible for the buyer whether paid domestically or overseas.



Multinationals


DIC/DIL


Premium taxes

There are no premium taxes or fire service charges payable by either insurers or policyholders. There are a number of levies onthe compulsory classes, but these may not be written by non-admitted insurers.

Buyers

There is nothing in the legislation to prevent insurance buyers from placing their business with non-admitted insurers abroad,with the exception of certain compulsory classes.

There is no difference in the tax treatment of claim payments whether received from admitted or non-admitted insurers.



Intermediaries

Insurance broking may only be conducted in Hong Kong by companies which are either directly authorised by the InsuranceAuthority (IA) or are members of a professional association recognised by the IA. It is an offence under the InsuranceCompanies Ordinance for an insurance company to accept business from an unauthorised insurance broker.

Intermediaries may only place business with non-admitted insurers if requested by their clients or if suitable cover is notavailable in Hong Kong. In the case of a personal lines client, the broker must issue a warning notice and obtain a writtenacknowledgement. The warning notice should read as stated below.

"Your insurance contract may be/has been arranged or effected wholly or partly with an insurer authorised in another jurisdictionbut not authorised by the Insurance Authority to conduct insurance business in Hong Kong. Such insurers are not subject to theprovisions of the Insurance Companies Ordinance, which establishes a system of prudential supervision of authorised insurersin Hong Kong.

It is a matter for your consideration whether you should obtain further information from the insurance broker involved on matterssuch as:

• name and address of the insurer not authorised in Hong Kong

• country of incorporation of the insurer not authorised in Hong Kong and whether that country has a comparable systemof insurance supervision

• financial standing of the insurer

• which country's laws will determine disputes under the contract."

The acknowledgement should read:

"I (name and address) have read the above notice and I acknowledge that the insurance contract may be/has been arranged oreffected wholly or partly with an insurer authorised in another jurisdiction but not authorised by the Insurance Authority toconduct insurance business in Hong Kong".

In the case of a corporate client, the broker may either issue the same warning notice and obtain the same acknowledgementform or may include the following notice in the cover note or placement confirmation.

"The underwriting security of this insurance includes participation by an insurer authorised in another jurisdiction but notauthorised by the Insurance Authority to conduct insurance business in Hong Kong. You are reminded that such insurers are notsubject to the provisions of the Insurance Companies Ordinance, which establishes a system of prudential supervision ofauthorised insurers in Hong Kong.

It is a matter for your consideration whether you should obtain further information from the insurance brokers on matters suchas:

• name and address of the insurer not authorised in Hong Kong

• country of incorporation of the insurer not authorised in Hong Kong

• financial standing of the insurer

• which country's laws will determine disputes under the contract."



Market Practice

Although multinational corporations have the option of insuring their Hong Kong operations directly with their global programmecarriers or captives, most multinational subsidiaries are insured under local fronting policies. This is partly for ease ofcommunication and speed of claim settlement, and partly because many Hong Kong banks and principals require theirborrowers or contractors to be covered by an approved insurer. Some principals require a full set of policy documents, includingthe most recent premium receipt, as evidence that a contractor is insured - something that multinational head offices are unlikelyto release. Although a certificate of cover issued by an insurer or broker may sometimes be acceptable, the easiest way ofsatisfying an enquiry about insurance coverage is to have a locally placed policy available.

Most policies for domestic corporations are either placed or led in Hong Kong. A small number of the largest property risks areplaced in London, as are some high-limit or high-risk liability policies and some excess liability layers.

Fines/Penalties

The maximum penalty for carrying on unauthorised insurance business in Hong Kong is a fine of HKD 2mn (USD 256,410).Individual offenders may be imprisoned for up to two years.

In the event that a contract of insurance is concluded in breach of the requirement for local authorisation, the insured is granteda statutory option to either affirm the contract or avoid it and obtain a refund of premium.

India

Insurers

The following insurances are qualified exceptions to the general prohibition on non-admitted placements:

• although importers and exporters of goods may not purchase marine cargo insurance from non-admitted insurers,international marine cargo may be insured elsewhere, in accordance with the terms of trade such as imports on a CIFbasis

• residents in India may remit funds for securing healthcare insurance with an overseas insurer

• risks situated in special economic zones (SEZ) provided premiums are paid in foreign currency; any requirement for localapproval would need to be established

• special exemption agreed by IRDA.

The International Comparative Review of Cross Border Risks October 2008 refers specifically to cases where prior approval fornon-admitted insurance is already granted. For example, seafood and other perishable food/food product exporters may buyrejection risks cover from a foreign insurer.

Other legislation including the Foreign Exchange Management Act 1999 enables the Reserve Bank of India to make necessaryregulations. The Foreign Exchange Management (Insurance) Regulations2000 and subsequent amendments of 2002 and 2003prohibit Indian residents from taking insurance cover from foreign insurers who are not licensed in India. Furthermore "a personresident in India may continue to hold any general insurance policy issued by an insurer outside India when such person wasresident outside India". The 2003 amendments go on to say "provided further that where the premium due on a generalinsurance policy has been paid by making a remittance from India, the policyholder shall repatriate to India through normal



banking channels the maturity proceeds or amount of any claim due on the policy, within a period of seven days from the receiptthereof".

Regulations which exempt healthcare insurance from the basic non-admitted insurance regulations include the ForeignExchange Management (Current Account Transactions) Rules 2000. In accordance with Schedule II, No 10 payment forhealthcare insurance from a company overseas required approval from the Ministry of Finance (Insurance Division). On 24February 2004, however, the Reserve Bank of India issued Circular No 76 which stipulated under Article 2 (I) entitledRemittance for Securing Insurance for Health from a Company Abroad that the government's approval would not be required inthe future and that authorised currency dealers could permit such remittances freely.


There does not appear to be a definition of a local risk.

Exchange Controls

Currency exchange control is an issue for non-admitted placements because if in cases other than marine cargo andhealthcare, permission is sought from the IRDA for exemptions to the rules, it is understood that a request would have to bemade to the Reserve Bank of India to release the necessary funds to effect the transaction. The Reserve Bank has, however,removed restrictions on residents in India who wish to remit funds for securing healthcare insurance with a company abroad(also see Insurers above).

Tax

It is not precisely known if premiums paid overseas are tax deductible for the buyer, but it is thought that if the relevantinsurance comes within the range of permitted and approved non-admitted insurances it is thought that premiums would bedeductible in respect of corporate tax.


As far as is known, insurers involved in non-admitted placements do not have to warn buyers that they are not subject to localsupervision but they may consider it prudent to do so.

Multinationals


DIC/DIL


Premium Taxes

All premium taxes set out in the Taxation section of this report are due on premiums for non-admitted insurance.

Buyers

Insurance buyers cannot place their business with non-admitted insurers abroad with qualified exceptions mentioned under theheading, Insurers.

Market practitioners remark that, given the wide availability in the market of all forms and types of non-life insurance coverage,application for exemption from regulations to the IRDA would be a very rare exception to the norm.



Intermediaries

Intermediaries (brokers or agents) have to be authorised to do insurance business.

Intermediaries are not permitted to place business on a non-admitted basis.

Market Practice

Reliable sources in the market report that some multinational subsidiaries in India do not take out local insurances when theyknow that they can rely on global programmes arranged by their head offices even though this is illegal. "Offshore" insurerspaying claims money into India would be behaving in an illicit manner if the payment referred to the settlement of a loss withinthe country. Such monies may have been paid in the past under the guise of a remittance for investment purposes.

Generally speaking, however, the remittance of claims proceeds from a foreign insurer to an Indian insurer or third partyclaimant (in the case of liability policies) would be questioned by the Indian regulatory authorities, especially if evidence of acorresponding premium payment is unavailable. Furthermore, a policy document issued outside India cannot be admitted asevidence within the country, if it were taken out in contravention of the regulations. Also foreign insurers cannot activelyparticipate in the claim proceedings or intervene to conduct a local case on behalf of their insured. Market sources have alsoreported cases of local policies being placed for a sum insured that is lower than it should be and offshore policies beingarranged for the balance. This does not conform to the spirit of the law on non-admitted business and runs the risk of theapplication of an average clause to the local policy. For these reasons and in order to ensure contract certainty, it is crucial thatcover is arranged locally in the first instance from an admitted insurer.

Although India has been a member of WTO since 1995 it continues to apply strict restrictive practices in respect of the crossborder supply of insurance and reinsurance services (as noted above), including significant control on insurance andreinsurance remittances.

Fines/Penalties

Section 25 (2) of the General Insurance Business (Nationalisation) Act 1972 states that:

"If any person contravenes any provision of Sub-section (1), he shall be punishable with imprisonment for a term, which mayextend to one year, or with a fine, which may extend to one thousand rupees, or with both".

Also the Foreign Exchange Management Act 1999 ( FEMA) stipulates that if an Indian insured procures cover from a foreigninsurer without requisite approval, it amounts to a breach of FEMA which attracts the following sanctions:

• a penalty of up to three times the amount involved in the contravention where such amount is quantifiable or up to INR200,000 (USD 3,284) where the amount is not quantifiable

• a penalty of up to INR 5,000 (USD 82) per day for a continuing contravention

• confiscation of any currency security or any other money or property in relation to the contravention.



Japan

Insurers


• international marine cargo (excluding coastal cargo and inland transit)

• hull and liabilities in respect of Japanese ships and aircraft engaged in international trade

• overseas travel insurance.


A local risk is defined as "persons having residence or place of abode in Japan or property situated there or vessels or aircraft ofJapanese nationality".

Exchange Controls

There are no exchange controls which might inhibit the payment of premiums to non-admitted insurers abroad.

Tax

Premiums paid overseas for legitimate non-admitted policies are tax deductible for the buyer.


Insurers involved in non-admitted placements are not explicitly required to warn buyers that they are not subject to localsupervision. There is a provision in the Insurance Business Law, however, which requires insurers to disclose all materialmatters regarding the terms of an insurance policy, and this might be interpreted as requiring the disclosure of non-admittedsecurity.

Multinationals


DIC/DIL

The legislation does not address the use of global difference in conditions/difference in limits (DIC/DIL) covers or excess layersabove a primary local policy.

Premium Taxes

There are no premium taxes or other charges due on policies which may legitimately be written by non-admitted insurers.

Buyers

Insurance buyers cannot place their business with non-admitted insurers abroad except for the following lines:

• international marine cargo (excluding coastal cargo and inland transit)

• hull and liabilities in respect of Japanese ships and aircraft engaged in international trade



• overseas travel insurance.

Because non-admitted DIC/DIL policies are technically illegal, foreign enterprises in Japan would hesitate to receive a largeclaim payment due under such a policy directly from an offshore insurer. Some sources believe that such a payment could bemade by the Japanese subsidiary or branch of the offshore insurer involved, which could then be compensated by the overseasoffice where the non-admitted policy was actually written.

Intermediaries

Insurance intermediaries (brokers or agents) are not allowed to conduct business in Japan without a licence from the FinancialServices Agency (FSA). There is no local licensing requirement for foreign brokers placing international marine and aviationbusiness with non-admitted carriers abroad.

Licensed brokers are not allowed to place business with non-admitted carriers except for international marine and aviation.

Article 299 of the Insurance Business Law provides that an insurance broker, as an intermediary in effecting an insurancecontract, must act in good faith in the interests of the client. This may be interpreted to mean that brokers involved in non-admitted placements should warn buyers that their insurer is not subject to local supervision.

Market Practice

Because of strict standards of legal enforcement in Japan, foreign multinationals are unlikely to use non-admitted carriersexcept for highly specialised global covers or for global DIC/DIL policies. Even though purchased at head office level, suchpolicies are technically illegal in so far as they relate to risks in Japan. No information is therefore available about how commonsuch arrangements may be.

Fines/Penalties

The penalty for breaching Article 186 of the Insurance Business Law is a fine, a maximum of two years' imprisonment, or both.

Korea (Republic of)

Insurers

According to Chapter 1, Article 7 of the Enforcement Decree of the Insurance Business Law, the following insurances areexceptions to the general prohibition on non-admitted placements:

• aviation

• export and import cargo

• marine hull

• travel

• long-term personal accident



• business declined by at least three domestic insurers (business is only deemed to have been declined by three insurersif each insurer has completed a form supplied by the General Insurance Association of Korea)

• insurance business not conducted in Korea

• policies previously entered into by policyholders abroad, which may be kept in force in Korea until they expire

• cases specifically approved by the FSC which fall outside the exemptions listed above but where it is still difficult toarrange cover with a domestic insurer.

According to Chapter 1, Section 2, Articles 1-5 to 1-10 of the Regulation on the Supervision of Insurance Business, incircumstances where non-admitted insurance is allowed, contact between foreign insurer and Korean client may only be madeon a direct basis by means of mail, telephone, fax or the internet. Foreign insurers are strictly prohibited from appointingrepresentatives or agents in Korea, whether these are insurance companies, solicitors, agents or brokers. Foreign insurers arenot allowed to have directors or employees engaged in insurance sales in Korea. Korean residents are specifically prohibitedfrom entering into a contract with a foreign insurer through an insurance company, solicitor, agent or broker located in Korea.

The new Guidelines on the Cross-Border Sale of Insurance Products by Foreign Insurance Companies impose furtherconditions on non-admitted insurers wishing to write any of the permitted business classes for Korean residents. These aresummarised below.

• Before engaging in cross-border sales, foreign insurance companies (FIC) must submit a reporting form to the FSSaccompanied by (1) evidence that they are licensed in their home jurisdiction, (2) proof of their head office and branchaddresses and (3) financial statements for the preceding three years.

• FIC that have duly reported to the FSS shall be listed on the FSS website.

• FIC must make the following disclosures to prospective Korean policyholders: (1) name, address and contact details, (2)confirmation that the FIC has reported to the FSS, (3) that the FIC is not licensed, incorporated or represented in Korea,(4) that the FIC is not supervised by the FSS and (5) that its products are not covered by Korea's policyholders'protection scheme.

• FIC may additionally sell through foreign brokers or agencies, but only if these have reported to the FSS in accordancewith the Guidelines on the Cross-Border Sale of Insurance Products by Foreign Insurance Brokers and Agencies.

• FIC are allowed to advertise in any media in Korea, but their advertisements must be approved by the FSS in advanceand must contain a statement in the Korean language to the effect that the policy is not covered by the Koreanpolicyholders' protection system.

• FIC must file their policy wordings and any promotional materials such as brochures with the FSS.

• FIC must file annual sales reports of cross-border business and annual financial statements with the FSS within sixmonths of their financial year-end.

• Policy documents must be available in Korean if requested and must be filed in either Korean or English.

Local Risk Definition. A local risk is defined as, "a resident as defined in the Foreign Exchange Transaction Act ". This is anindividual whose address or place of residence is within the Republic of Korea or a company whose office is within the Republicof Korea.



Exchange controls. Foreign payments are monitored by commercial banks on behalf of the National Bank. This may allow thedetection of premiums paid for illegitimate non-admitted policies.

Tax. Premiums paid for legitimate non-admitted policies are tax deductible for the buyer.

Insurer responsibilities. The disclosure requirements imposed on non-admitted insurers are laid down in the Guidelines on theCross-Border Sale of Insurance Products by Foreign Insurance Companies and are given in detail above.

Multinationals. There is no legislation relating specifically to multinational insurance programmes or multinational insurers andsuch insurances and insurers are subject to the same rules as all other insurances and insurers.

DIC/DIL. The legislation does not address the use of global difference in conditions/difference in limits (DIC/DIL) covers orexcess layers above a primary local policy.

Premium taxes. There are no premium taxes or other charges applicable to non-admitted policies.

Buyers

Insurance buyers are not allowed to place business with non-admitted insurers except for the following classes:

• aviation

• export and import cargo

• marine hull

• travel

• long-term personal accident

• business declined by at least three domestic insurers (business is only deemed to have been declined by three insurersif each insurer has completed a form supplied by the General Insurance Association of Korea)

• insurance business not conducted in Korea

• policies previously entered into by policyholders abroad, which may be kept in force in Korea until they expire

• cases specifically approved by the FSC which fall outside the exemptions listed above but where it is still difficult toarrange cover with a domestic insurer.

According to Chapter 1, Article 1-9 of the Regulation on the Supervision of Insurance Business, insurance buyers should checkwith the General Insurance Association of Korea to ensure that the policy they wish to place abroad falls within the range ofexcepted classes.

In circumstances where non-admitted insurance is allowed, buyers may only contract with foreign insurers which have reportedto the FSS and which otherwise comply with the Guidelines on the Cross-Border Sale of Insurance Products by ForeignInsurance Companies. Contact between foreign insurer and Korean buyer may only be made by means of mail, telephone, faxor the internet, or through a foreign broker or agency which has reported to the FSS and which otherwise complies with theGuidelines on the Cross-Border Sale of Insurance Products by Foreign Insurance Brokers and Agencies.



The main incentive for insurance buyers to comply with the law is the fact that claims payments received from non-admittedinsurers in respect of unauthorised classes would be taxed as income in Korea. Claims under DIC/DIL policies must thereforebe paid at head office level and other arrangements made for transferring the funds to the Korean subsidiary.

Intermediaries

Insurance intermediaries (brokers or agents) may not conduct business in Korea without a licence from the FSC. Koreanintermediaries are not allowed to act on behalf of non-admitted insurers even in circumstances in which non-admitted insuranceis allowed.

The Guidelines on the Cross-Border Sale of Insurance Products by Foreign Insurance Brokers and Agencies which came intoeffect on 1 May 2012 allows foreign brokers and agencies (FIBA) to sell foreign insurance products to Korean residents subjectto the conditions listed below.

• Before engaging in cross-border sales, a FIBA must submit a reporting form to the FSS accompanied by (1) evidencethat they are licensed in their home jurisdiction, (2) proof of their head office and branch addresses and (3) financialstatements for the preceding three years.

• FIBA that have duly reported to the FSS shall be listed on the FSS website.

• FIBA must have professional indemnity insurance with a minimum indemnity limit of KRW 1bn (USD 875,657) which willcover claims brought against them by Korean residents. Evidence of this cover must be provided to the FSS.

• Before engaging in cross-border sales, FIBA must set up a dedicated account at a bank designated by the FSS throughwhich all funds received and disbursed in respect of cross-border sales shall be processed. All fees and commissionsreceived in respect of cross-border sales must be deposited in this account. Premiums paid into this account fromKorean policyholders must be immediately transferred to the foreign insurance company to which they are due.

• FIBA must make the following disclosures to prospective Korean policyholders: (1) name, address and contact details,(2) confirmation that the FIBA has reported to the FSS, (3) names of the foreign insurers with which cover will be placedand the FIBA's relationship with such insurers, (4) that the FIBA is not licensed, incorporated or represented in Korea, (5)that the FIBA is not supervised by the FSS, (6) that cross-border policyholders are not covered by Korea's policyholders'protection scheme and (6) the premiums that the foreign insurers have quoted to the FIBA.

• The only types of insurance that a FIBA may sell to Korean residents are those listed in Chapter 1, Article 7 of theEnforcement Decree of the Insurance Business Law.

• A FIBA may only sell by mail, telephone, fax or the internet and may not appoint representatives or agents in Korea,whether these are insurance companies, solicitors, agents or brokers.

• A FIBA is allowed to advertise in any media in Korea, but its advertisements must be approved by the FSS in advanceand must contain a statement in the Korean language to the effect that the policy is not covered by the Koreanpolicyholders' protection system.

• A FIBA must file its policy wordings and any promotional materials such as brochures with the FSS.

• An FBA may not sell the products of insurance companies which have not reported to the FSS in accordance with theGuidelines on the Cross-Border Sale of Insurance Products by Foreign Insurance Companies.



• A FIBA must file annual sales reports of cross-border business and annual financial statements with the FSS within sixmonths of their financial year-end.

• Policy documents must be available in Korean if requested and must be filed in either Korean or English.

Market Practice

Korea's non-admitted insurance legislation is generally respected. The only classes which are known to be written abroad arethe DIC/DIL covers which supplement local policies written for foreign multinationals.

Fines/Penalties

The maximum penalty for conducting insurance business without a licence is five years' imprisonment or a fine of up to KRW30mn (USD 26,270). There are similar but lesser penalties for acting as an intermediary for a non-admitted insurer. There is nopenalty for insurance buyers who insure with non-admitted insurers.

Malaysia

Insurers


• non-Malaysian-registered ships and aircraft

• international marine hull and cargo risks (ASEAN countries only)

• personal accident contracts.

Application to the regulator to grant an exemption may be made for any other class of business if the cover is not available forreasons of risk or capacity. Most applications are said to relate to liability, energy or aviation business, but BNM sources advisedthat there were only four or five cases in 2012. The fact that insurance would be cheaper overseas is not grounds for exemption.

There is no legal requirement for the compulsory insurance of imports in Malaysia, although the government introduced taxincentives some years ago in an effort to encourage the development of a local marine cargo insurance market. Cargo ownersare offered the opportunity to double deduct marine cargo insurance premiums for business tax purposes, but this has had littleoverall impact on the placement of business in the country. Those insurance companies that insure marine cargo exports arealso offered an incentive insofar as profits generated from such business are taxed at a rate of 5%, and not the usual corporatetax rate of 25%.


A local property risk is defined as "property, movable or immovable, located in Malaysia, including any ship or aircraft registeredin Malaysia" and liability means "liability of a person resident in Malaysia to a third party".

Exchange Controls

Currency exchange control would probably not be an issue for non-admitted placements, but such placements are not common.



Tax

Premiums paid overseas would not be tax deductible for the buyer. Any monies remitted to Malaysia as a result of a claimsettlement from a non-admitted insurer could be treated as unearned revenue and taxed.



Multinationals


DIC/DIL

Legislation does not address the use of global difference in conditions/difference in limits covers or excess layers above aprimary local policy. The practice of insuring foreign multinationals with DIC/DIL covers placed overseas undoubtedly takesplace, but is considered to be in contravention of local legislation. Local multinational brokers adhere strictly to the letter of thelaw, and are increasingly pointing out to their international partners or principals that such policies may not be issued.

Premium Taxes

Should non-admitted insurance be permissible, a withholding tax of effectively 1.25% net is levied on premiums cededoverseas, normally passed on to reinsurers in respect of their proportion of the risk as was the IGSF levy of 0.25%. The TIPS,which replaced IGSF from 1 January 2011, is funded by a variable levy depending on the level of risk each company brings tothe fund. This is not passed on to reinsurers.

According to market sources, the service tax and stamp duty would not be payable on non-admitted policies but this could notbe verified.

Buyers

Insurance buyers cannot place their business with non-admitted insurers abroad except for the following lines:

• non-Malaysian-registered ships and aircraft

• international marine hull and cargo risks (ASEAN countries only)

• personal accident contracts.

There could be tax implications on the payment of losses from overseas, but the system does not appear to have been testedbecause of the virtually total prohibition on non-admitted insurance.

Where supervisory approval is required for a specific case, the intermediary should apply to the BNM and explain the reasons -eg cover not available locally.

Intermediaries

Intermediaries (ie brokers or agents) have to be authorised to do insurance business.

Intermediaries are not allowed to place business with non-admitted insurers unless permission has, exceptionally, been granted.



Intermediaries involved in non-admitted placements do not have to be specifically registered with the BNM other than in theircapacity as intermediaries.


The Insurance (Exemption) (No 2) Order 2012 and Insurance (Approved International Marine, Aviation and Transit InsuranceBrokers) Regulations 2012 dated 31 May 2012 allow, subject to approval from the BNM and fulfilment of certain specifiedconditions, insurance broking entities which are licensed, registered, approved or otherwise regulated and supervised under thelaw of a designated country or territory to carry on MAT insurance broking business for Malaysian policyholders from outsideMalaysia. "Designated country or territory" comprises the Association of South East Asian Nations (ASEAN) member states andLabuan. Amongst the legislative requirements is a minimum capital of MYR 500,000 (USD 163,934) and professional indemnityinsurance for the same amount.

Market Practice

Insurers and brokers are careful to comply with the local legislation and would not expose themselves to the stringent fines andpenalties which non-compliance could bring. Fronting is permitted, but again the BNM's requirement that priority is given to localinsurance and reinsurance markets, prior to approaching overseas markets, means that the potential is limited.

Following the introduction of a risk-based capital framework effective from 1 January 2009, risk charges on fronted risksreinsured overseas can vary between 1.6% and 12%, which is said to have led a number of local insurers to reconsider theirwillingness to provide fronting facilities, or to charge a higher fee for doing so. The BNM reports no noticeable increase inrequests for non-admitted covers, with only four or five cases authorised in 2012. Market practitioners advise approval cantypically take up to two months, as it is by no means a formality with full proof having to be provided that the risk cannot beinsured locally.

Fines/Penalties

Penalties for non-compliance are 10 years' imprisonment, a fine of MYR 10mn (USD 3.28mn) or both in respect of insurancecompanies, and three years' imprisonment, a fine of MYR 3mn (USD 983,607) or both as regards brokers. The BNM could alsotake other action such as removing a company's board of directors, or suspending or prohibiting its activities. The penalty forany person or company insuring with an unlicensed insurer is MYR 500,000 (USD 163,934).

There have been no reported breaches to date. Companies are well aware of the need to comply with the regulations on tariffsand other matters and the insurers' association (PIAM), of which membership is compulsory for all non-life players, also carriesout an audit function. Companies would not be able to operate if they were expelled from PIAM, so its reviews carry weight.

Mexico

Insurers

No insurances, compulsory or voluntary, may be placed on a non-admitted basis unless cover is unavailable locally and thesupervisory authority gives specific approval.


Local risks are defined in Article 3 of the LGISMS which prohibits the placement with foreign insurers of the followinginsurances:



• insurances of the person when the insured is in the Republic of Mexico when the contract is made

• insurances of ships, aircraft and of any type of vehicle against marine and transport risks always provided that suchships, aircraft or vehicles be registered in Mexico or the property of persons domiciled in Mexico

• credit insurance, housing credit insurance and financial guarantee when the insured is subject to Mexican law

• insurance covering third party liability arising from events which may occur in the republic

• insurances covering the remaining classes against risks which may occur in Mexican territory (this does not apply to non-residents who may buy insurances abroad to cover their eventual visit).

• The stipulations of LISF which comes into effect in April 2015 are outlined under the heading Legislation in the Non-admitted Insurance, Summary section of this report.

Exchange controls

There are no exchange control regulations which might affect either admitted or non-admitted placements.

Tax

Premiums paid overseas are unlikely to be tax deductible for the buyer in respect of illegal non-admitted placements. In theunlikely event of regulatory approval being given, tax deductibility would need to be confirmed with the regulator.



Multinationals


DIC/DIL

The legislation does not address the use of global difference in conditions/difference in limits covers nor excess layers above aprimary local policy.

Premium taxes

There is no known precedent for placement of insurance on a non-admitted basis. In the unlikely event of regulatory approvalbeing given, tax liability would need to be confirmed with the regulator.

Buyers

Insurance buyers may not place their business with non-admitted insurers abroad. Article 3 of LGISMS prohibits the placementwith foreign insurers of the following insurances:

• insurances of the person when the insured is in the Republic of Mexico when the contract is made

• insurances of ships, aircraft and of any type of vehicle against marine and transport risks always provided that suchships, aircraft or vehicles be registered in Mexico or the property of persons domiciled in Mexico



• credit insurance, housing credit insurance and financial guarantee when the insured is subject to Mexican law

• insurance covering third party liability arising from events which may occur in the republic

• insurances covering the remaining classes against risks which may occur in Mexican territory (this does not apply to non-residents who may buy insurances abroad to cover their eventual visit).

Technically, in order not to breach the insurance law, an insurance buyer could travel out of Mexico in order to purchase coverfrom a non-admitted carrier, but such non-admitted insurers are not permitted to undertake any advertising or promotionalactivity in Mexico.

It is not known how loss payments are handled by offshore insurers, nor what the tax consequences may be.

Article 3 III of the insurance law states that the Finance Ministry may grant exceptions:

• to foreign insurers which make insurance contracts in Mexico covering risks which may only occur in the foreigncountries where those insurers are authorised

• to whomever is able to prove that no authorised insurer is willing or able to cover a particular risk.

The stipulations of LISF which comes into effect in April 2015 are outlined under the heading Legislation in the Non-admittedInsurance, Summary section of this report.

Intermediaries

Intermediaries (ie brokers or agents) must be authorised to transact insurance business, as stipulated in Article 23 of LGISMS.

Intermediaries are not allowed to place business with non-admitted insurers, as per Article 3, Section IV of LGISMS whichspecifically prohibits intermediaries from placing insurance with non-admitted carriers unless authorisation has been given bythe Finance Ministry.

LISF which will take effect from April 2015 defines (Articles 91 and 92) anyone involved in intermediation of insurance or suretybusiness as an agent, whether individual or corporate, while Article 93 sets out the requirement for them to be authorised.Article 23 stipulates that the classes of business which may not be written with foreign companies listed in Article 21 (see underthe heading Legislation in the Non-admitted Insurance, Summary section of this report) may not be offered in Mexico eitherdirectly by such companies or through intermediaries. This includes insurance of goods being transported from Mexico abroador vice versa.

Article 35 is the equivalent for surety business of Article 23.

Market Practice

The supervisory authority CNSF and the insurance association AMIS have in the past produced pamphlets advising insureds todeal only with authorised companies and warning them of the potential dangers of insuring with a foreign company not licensedin Mexico. Whilst foreign companies and agents do still offer their products in Mexico, such activities are mainly confined to thelife and healthcare sectors.

There are said to have been very few cases where an exception has been requested to the rules on non-admitted insurances.The Mexican market can accommodate virtually all risks, especially as fronting up to 100% is allowed.



Fines/Penalties

It is a criminal offence for non-admitted insurers to offer their products in Mexico. If the CNSF were to find out that such anactivity were taking place it would be likely to prosecute.

Sanctions of fines and even prison sentences are laid down in Articles 132 to 147 of the LGISMS.

Article 141 lays down prison sentences of between three and 15 years plus a corporate or personal fine of between 1,500 and5,000 days' minimum salary (as applicable in Mexico City) for illegal insurance operations or placement with non-admittedinsurers. This daily minimum wage (for Mexico City) from 1 January 2013 was MXN 64.76 (USD 5).

LISF, which takes effect from April 2015, lays down in Article 487 fines of between 50% and 100% of the insurance or suretypremium involved in non-admitted placements when an individual is in breach of regulations, and between 100% and 200% fora corporation.

New Zealand

Insurers

There are no restrictions on the classes of insurance which may be placed with non-admitted insurers outside the country. Thereis no merit, however, in placing most types of personal injury liability or primary household earthquake insurance abroad sincecover is provided automatically under statutory schemes. Further details of these schemes are given in the State InsuranceCompanies section of this report within Insurance Market Overview.


A local risk is not defined in the legislation.

Exchange controls

There are no exchange controls which might restrict the payment of premiums abroad.


Insurers writing non-admitted policies do not have to warn buyers that they are not subject to local supervision.

Tax

Premiums paid to non-admitted insurers abroad are tax deductible for the insurance buyer.

Multinationals


DIC/DIL


Premium taxes



An offshore insurer is deemed to make a 10% profit on its New Zealand underwriting, on which it is liable to pay New Zealandcorporation tax at the standard rate of 28%. The insurance buyer or broker is required to file a tax return with the New Zealandtax office and to deduct 2.8% deemed profit tax from gross premiums remitted abroad. Insurers domiciled in countries whichhave double taxation treaties with New Zealand may be allowed to offset New Zealand tax deductions against their domestic taxliabilities.

The fire service levies (FSL) detailed in the Taxation section of this report are due on fire and motor policies placed directly withnon-admitted insurers abroad and should be paid to the New Zealand Fire Service Commission by the policyholder or thebroker. There is no effective method for ensuring that this is done, however. Goods and services tax (GST) is due on the fireservice levy, but not on the actual premium, which is zero-rated because the underwriting takes place outside New Zealand.

Buyers

There is nothing in the Insurance (Prudential Supervision) Act 2010 to prevent insurance buyers from placing their business withnon-admitted insurers abroad, either directly or through an intermediary.

There is no merit in placing most types of personal injury liability or primary household earthquake insurance abroad since coveris provided automatically under statutory schemes. Further details of these schemes are given in the State InsuranceCompanies section of this report within Insurance Market Overview.

Intermediaries

Intermediaries (brokers and agents) have to be registered with the Registrar of Financial Service Providers in order to doinsurance business in New Zealand. Registered intermediaries are allowed to place business with non-admitted insurers.Brokers involved in non-admitted placements do not have to warn buyers that their insurer is not subject to local supervision.

Market Practice

Considerable volumes of business are placed with non-admitted insurers, particularly in London, Australia and Singapore. Anumber of the largest accounts have traditional London leads or require London market capacity. Australian insurers are oftenused for specialist lines such as mining, energy or CAR. Insurers in Singapore are used increasingly by brokers, either toprovide follow-line capacity or because the client has business interests in Asia.

Many New Zealand enterprises are owned by Australian companies and are insured under Australian policies controlled byAustralian brokers. In order to ensure tax compliance, it is now common for the New Zealand office of the controlling broker toissue a local debit note for the New Zealand premium allocation plus FSL and GST on the FSL. Deemed profit tax of 2.8% mustbe deducted from premiums remitted to Australian insurers. Alternatively, if the Australian insurer has an affiliate in NewZealand, the premium (plus GST on the premium) may be paid to the local affiliate, in which case 2.8% tax is not deducted.

Fines/Penalties

The Insurance (Prudential Supervision) Act provides penalties for carrying on insurance business in New Zealand without beinglicensed by the RB. The penalty for an offending company is a fine of up to NZD 1mn (USD 781,250); the penalty for anindividual is up to three months' imprisonment, a fine of up to NZD 200,000 (USD 156,250), or both.

The Financial Service Providers (Registration and Dispute Resolution) Act provides penalties for intermediaries which conductbusiness in New Zealand without being registered. The penalty for an offending individual is up to 12 months' imprisonmentand/or a fine of up to NZD 100,000 (USD 78,125); the penalty for an offending company is a fine of up to NZD 300,000 (USD234,375).



The RB has investigated a number of foreign insurers which appeared to be carrying on insurance business in New Zealandwithout a licence but has not yet been forced to act. Licensed insurers are said to be vigilant in reporting any unlicensedcompetition to the regulator.

Philippines

Insurers


• marine cargo imports and exports.

For clearance purposes the customs authorities require sight of certificates of insurance in the case of marine cargo imports.Such certificates can be issued locally by admitted insurers or by non-admitted insurers overseas in line with the terms of tradeof the shipment. The penalty for failing to insure imports at all is 4% of the cargo value. It has been estimated that 60% to 70%of imports are insured locally.


A local risk is defined as a risk located or situated in the Philippines.

Exchange Controls

Currency exchange control is an issue for non-admitted placements because where a client does not have access to foreignexchange, any application for foreign currency funds needs to be made to a commercial bank in the Philippines for any amountexceeding USD 10,000. The commercial bank is then obliged to refer the matter to the Central Bank (Bangko Sentral ngPilipinas) which will in turn refer the matter to the IC before approving any remittance.

Tax



Insurers involved in non-admitted placements have to warn buyers that they are not subject to local supervision.

Multinationals


DIC/DIL


Premium Taxes

All premium taxes and charges set out in the Taxation section of this report, except for the fire service tax, are due on premiumsfor non-admitted insurance. They are payable by the insured.



Buyers

Insurance buyers cannot place their business with non-admitted insurers abroad, unless they can demonstrate to the IC thatthey are unable to place a risk or risks with insurance companies in the Philippines, or unless the subject matter of insurance ismarine cargo imports or exports. For clearance purposes the customs authorities require sight of certificates of insurance in thecase of marine cargo imports. Such certificates can be issued locally by admitted insurers or by non-admitted insurers overseasin line with the terms of trade of the shipment. The penalty for failing to insure imports at all is 4% of the cargo value.

The procedure for applying to the IC for approval to place business (except marine cargo imports and exports) overseasrequires buyers to provide details of the risk(s) they are trying to place and the companies they have approached. In specialcases dispensation may be granted by the IC, but this is rare.

The most recent ruling in this respect is enshrined in Circular Letter 17 - 2007 which stipulates that in relation to marine hull,aviation, money, securities, payroll and robbery risks, placement must have been unsuccessfully attempted with at least twodirect-writing companies, one foreign-authorised company and one domestic professional reinsurance company, beforeauthorisation to approach foreign markets will be given by the IC. Further, in respect of all other risks, placement must havebeen unsuccessfully attempted with at least five direct-writing companies, three authorised foreign insurers and one domesticprofessional reinsurer.

Where non-admitted insurance is arranged without reference to the IC, and this is discovered at an audit, the buyer not onlyfaces the possibility of the premium charges being disallowed as operating expenses but is also exposed to a financial penaltyand possible imprisonment.

Intermediaries

Intermediaries (brokers or agents) have to be authorised to do insurance business. Circular Letter 29 - 2010 states that witheffect from 21 October 2010 it shall be the responsibility of insurance companies and co-operative insurance societies to ensurethat only intermediaries licensed by the IC are engaged to sell insurance or microinsurance products.

Intermediaries have no legitimate means of arranging non-admitted insurance and are subject to the provisions of Republic ActNo 10607 in the same way as buyers and insurance companies. It is incumbent upon intermediaries to make clients aware ofthe regulations, and the penalties for non-compliance.

The IC states specifically that any intermediary caught in breach of the non-admitted regulations risks suspension or withdrawalof the operating licence. This is the principal penalty for intermediary non-compliance.

Market Practice

The IC has only limited capability to police illicit placement of insurance abroad.

Large multinational companies sometimes consider breaching the non-admitted regulations because taxes on non-life policiesare onerous (see the Taxation section of this report).

It is customary practice for property/business interruption, primary liability cover and statutory insurances to be arranged in thePhilippines. Foreign multinational companies often arrange cover for excess liability under their global umbrella programmesoffshore on a non-admitted basis, because the law does not cover this issue.

There are no specific restrictions on fronting, although appropriate cessions must be made to national professional reinsurersand facultative reinsurance must be offered to companies in the market before going overseas for reinsurance support.

For clearance purposes the customs authorities require sight of certificates of insurance in the case of marine cargo imports.Such certificates can be issued locally by admitted insurers or by non-admitted insurers overseas in line with the terms of trade



of the shipment. The penalty for failing to insure imports at all is 4% of the cargo value. It has been recently estimated that 60%to 70% of imports are insured locally.

Marine cargo exports are not subject to any rules regarding the domicile of the insurer. Few domestic insurance companieswould in any case be able to service claims on export cargo in the absence of overseas representatives.

Fines/Penalties

The general penalty for wilful failure to comply with the provisions of the Insurance Code were specifically increased by RepublicAct No 10607 from PHP 500 (USD 11.25) to fines of not less than PHP 5,000 (USD 112.51) and not more than PHP 200,000(USD 4,500). In addition, Republic Act No 10607 provides that in respect of any failure to comply with the provisions of theInsurance Code for which no penalty is provided, the offender shall be deemed guilty of a penal offence and, upon conviction,shall be punished with a fine not exceeding PHP 200,000. Previously the fine in this respect was PHP 10,000 (USD 225).

Portugal

Insurers

There are almost 200 compulsory insurances in Portugal including motor third party liability, workers' compensation and, forcertain specific risks and professions, personal accident, property damage, public liability, theft, bonds, life and health covers.None may be placed on a non-admitted basis. Cargo may be imported on CIF terms and marine liabilities are in practice placeddirectly overseas.


The location of a risk is defined in Article 2 of Law 94-B/98 as "the member state where the property is situated...; where thevehicle is registered...; where the policyholder took out the insurance in respect of risks associated with travel insurances of fourmonths' duration or less or occurring outside the normal domicile in the case of all other classes; the member state where thepolicyholder has his usual residence or head office, in the case of a company" (Axco translation).

Exchange Controls

There are no currency exchange controls that affect insurance or reinsurance operations.

Tax

Premiums paid overseas under freedom of services legislation are tax deductible for the buyer to the same degree that locallypaid premiums are.


Insurers involved in placements under freedom of services legislation have to warn buyers that they are not subject to localsupervision and inform them of the member state in which their head office is situated.

Multinationals


DIC/DIL




Premium Taxes

All premium taxes set out in the Taxation section of this report are due on premiums placed with insurers authorised to operatein Portugal under the rules of establishment and the freedom of services legislation. They are payable by the insured or insureras indicated. Placements with non-admitted insurers are not permitted.

Buyers

In accordance with current legislation insurance buyers may place their business with insurers established in Portugal and thoseauthorised to operate under freedom of services regulations. According to the regulatory authority, obligatory insurances mustbe placed with admitted insurers.

Decree No 30690 of 27 August 1940 allowed buyers to place insurance abroad if the cover was not available in the local marketor the terms offered locally were considered to be excessively onerous. Although the legislation has not been specificallyrevoked, it is considered to have been tacitly superseded by the introduction of EU legislation and its provisions therefore nolonger apply. The regulatory authority indicates that the situation will be clarified when the Decree-Law 94-B/98 of 17 April isreviewed in the context of the introduction of Solvency II.

Losses may be freely paid into the country under policies issued by foreign insurers under freedom of services legislationwithout any tax implications.

Intermediaries

Intermediaries (brokers, agents and tied agents) have to be authorised to do insurance business.

Intermediaries are not allowed to place business with non-admitted insurers.


Market Practice

The diversity of companies operating in the market and the access to the freedom of services regime allow most risks to becovered without problem. There is thought to be no wilful circumvention of the legislation although considerable use is made offronting, more details of which may be found in the section on Fronting below.

Fines/Penalties

In the event of the ISP becoming aware of non-admitted insurance being written, the penalties could take the form of fines forthe company concerned and may even involve a prison sentence of up to three years.

No fines have been applied in the past 10 years.



Singapore

Insurers


• third party liability in respect of motor vehicles (bodily injury)

• work injury compensation.


There is no definition in the local legislation as to what constitutes a local risk.

With effect from 31 March 2009 the First Schedule to the Insurance Act was amended to clarify that, where a risk is in respect ofcargo transiting through Singapore or travelling between two destinations outside Singapore, the policy covering the risk will notbe deemed a "Singapore policy" even if the insured person is ordinarily resident or an insured establishment in Singapore.

Exchange Controls

Currency exchange control is not an issue for non-admitted placements because foreign currency may be freely taken into ortransferred out of Singapore.

Tax

The law is silent on the tax treatment of premiums paid overseas and it has not proven possible to determine with certaintywhether they are tax-deductible for the buyer.



Multinationals


DIC/DIL


Premium Taxes

The premium taxes set out in the Taxation section of this report do not apply to premiums for non-admitted insurance.

Buyers

There is nothing in the legislation to prevent insurance buyers from placing their business with non-admitted insurers abroad,with the exception of some compulsory insurances, provided that they do not employ the services of a Singapore-registeredinsurance broker, unless that broker has received special authorisation from the regulatory authority to place the business with anon-admitted insurer.



In the event of a loss under a non-admitted policy, non-admitted insurers are free to remit claims payments into Singapore. Asfar as it has been possible to ascertain, there are no tax consequences involved in doing so.

Intermediaries

Insurance brokers have to be authorised to do insurance business and insurance agents must operate on the basis of anagreement with a registered insurer.

Intermediaries are not allowed to place business with non-admitted insurers except in respect of reinsurance, risks locatedoutside Singapore and such other cases as may be specified by the regulatory authority. Section 35ZF of the Insurance Act,however, allows insurance brokers to seek the permission of the MAS for non-admitted placements in cases where "by reasonof the exceptional nature of the risk or other exceptional circumstances, it is not reasonably practicable" to arrange suchinsurance with a Singapore insurer. In order to obtain authorisation brokers are required to present proof of three declinaturesfrom locally registered insurers and, even then, the MAS may refer the broker to another insurer to seek the cover. If thatapproach also produces a negative result, permission to place the risk abroad will most likely be granted.

In accordance with Part 2 B of the Insurance Act, insurance brokers involved in non-admitted placements have to be registeredwith the Monetary Authority of Singapore.

Market Practice

In practice, most clients place their insurances in Singapore, as the market is able to meet most insurance requirements,including those of foreign multinationals.

Compulsory cessions no longer exist in the Singapore market.

By arranging insurance in Singapore, clients receive first-hand service and are able to deduct premium costs as a businessexpense for tax purposes.

Fines/Penalties

It is an offence for a company to transact insurance in Singapore when it is not registered with the MAS. The penalty forinfringement is a fine not exceeding SGD 125,000 (USD 101,296) and/or a maximum of three years' imprisonment. In the caseof a continuing infringement after conviction, an additional fine of SGD 12,500 (USD 10,129) per day or part thereof is payable.

Any person found guilty of soliciting business for an unauthorised insurer or reinsurer is liable to a fine of up to SGD 125,000(USD 101,296) or three years' imprisonment, or both.

Spain

Insurers

The insurances described below are exceptions to the general prohibition on non-admitted placements.

• International marine cargo shipments. Market sources agree that this exception applies to both imports and exports andto the full voyage, including inland marine, as far as "warehouse to warehouse" cover is concerned, provided that nointerruption in the journey takes place. There is doubt as to whether any storage risk is covered.



• Any other specific risk for which special authorisation has been sought from and granted by the DGSFP.


A local risk is defined in Article 1 of the Law on the Regulation and Supervision of Private Insurance as that in which:

• a building is situated

• a vehicle, ship or aircraft is registered

• a travel policy (with a duration of four months or more) is taken out.

For other types of insurance, the criteria are the country in which the individual is usually resident and that where a companyhas its head office or the branch to which the contract refers .

Exchange Controls

Currency exchange control is not an issue for non-admitted placements because the regulations have been liberalised in recentyears. As a result, the Bank of Spain now imposes only straightforward reporting requirements, aimed primarily at the control ofmoney laundering and the preparation of statistics.

Tax

Premiums paid overseas are tax deductible for the buyer provided that the insurances have been placed in accordance with thelegislation in force and all premium taxes and surcharges due locally have been paid.



Multinationals


DIC/DIL


Premium Taxes

All premium taxes and parafiscal charges shown in the Taxation section of this report are due locally on premiums for non-admitted insurance and those in respect of business placed under freedom of services regulations. They are payable by theinsured.

Buyers

Insurance buyers cannot place their business with non-admitted insurers abroad except for the lines described below.

• International marine cargo shipments. Market sources agree that this exception applies to both imports and exports andto the full voyage, including inland marine, as far as "warehouse to warehouse" cover is concerned provided that nointerruption in the journey takes place.



• Any other specific risk for which special authorisation has been sought from and granted by the DGSFP.

Losses under legally issued non-admitted policies may be freely paid into Spain, without any adverse tax implications.Payments under illegally placed insurances could not be made as claims payments and might have serious tax implications.

Although the law contemplates the possibility of an insured approaching the authorities to request authorisation in a specificcase to place the insurance on a non-admitted basis, no circumstances are prescribed and no formal procedure to be followedis set out. Enquiries suggest that in practice it does not happen as a full range of insurances are available in the local marketfrom local and the major multinational insurers and there is no justification to seek cover outside the system.

Intermediaries


They are allowed to place business with non-admitted insurers only in the case of the exceptions previously mentioned:international marine cargo shipments and any case specially sanctioned by the regulatory authorities.

Intermediaries involved in non-admitted placements have to be registered with the supervisory authority (DGSFP) or with theregulatory authority in their country of origin, provided that that is a member state of the European Economic Area (Law 26/2006-Intermediation Law). Those operating in any EU/EEA country must be registered with their home authority and may dobusiness in other member countries by means of freedom to provide services.

The law does not oblige brokers involved in non-admitted placements to warn buyers that their insurer is not subject to localsupervision.

Market Practice

Attempts are made occasionally by non-admitted insurers and brokers to seek business in the Spanish market and the DGSFPpublishes a list of non-admitted entities. At the end of June 2012 the list contained 38 non-admitted entities that have attemptedto obtain business as insurers in Spain and 26 that have tried to operate as insurance brokers.

Locally established insurers and brokers and those operating under freedom of services legislation are said to follow the lawand insureds have little need to seek insurance outside the admitted market which offers a full range of products and first-classsecurity.

Fines/Penalties

In accordance with Article 41 of the Law on the Regulation and Supervision of Private Insurance, the penalty for operating as aninsurer or reinsurer without a licence comprises the publication by the DGSFP of the offence and a fine corresponding to 1% ofthe offending company's capital or between EUR 150,000 (USD 189,270) and EUR 300,000 (USD 378,539) if 1% of the capitalis less than EUR 150,000.

Article 55 of the Insurance Intermediation Law categorises as "very serious" the acts of operating as an insurance intermediarywithout the necessary authorisation or placing risks with unauthorised insurers. These may give rise to the cancellation orsuspension of the licence to operate, a fine of between EUR 15,000 (USD 18,927) and EUR 30,000 (USD 37,854) and thepublication of the infraction.

The DGSFP publishes the names of companies that have attempted to operate in Spain without authorisation but it isunderstood that few, if any, sanctions have been applied to insurance companies and brokers established in Spain or operatingthere under freedom of services legislation for infringement of the non-admitted rules.



Sweden

Insurers


• third party liability for motor vehicles

• liability for nuclear installations

• oil pollution at sea.


Under EU law, a risk is located in Sweden if the insurance:

• relates to buildings and/or their contents and the property is located in Sweden

• relates to a vehicle which is registered in Sweden (this includes ships and aircraft)

• covers holiday or travel risks of up to four months duration and the policy is taken out in Sweden.

If the above do not apply, the risk is still considered as being located in Sweden if it covers a policyholder who is either:

• an individual who is habitually resident in Sweden or

• a business with its business establishment to which the policy relates in Sweden.

Exchange Controls

There are no currency exchange controls which might be an issue for non-admitted placements.

Tax

Premiums paid overseas are tax deductible for the buyer.



Multinationals


DIC/DIL


Premium Taxes



There are no premium taxes to be taken into consideration except in respect of motor third party liability which cannot be placedon a non-admitted basis anyway. If written through freedom of services the insurer must appoint a tax representative in Sweden.

Buyers

There is nothing in the legislation to prevent insurance buyers from placing their business with non-admitted insurers abroad(with the exception of some compulsory insurances).

It is also understood there are no adverse fiscal consequences as regards premiums remitted outside the EEA, or claimspayments received.

Intermediaries


Intermediaries are allowed to place business with non-admitted insurers.

Intermediaries involved in non-admitted placements do not have to be registered with the insurance supervisor(Finansinspektionen) .

Where local risks are placed as part of a multinational insurance programme, brokers involved in non-admitted placements donot have to warn buyers that their insurer is not subject to local supervision.


Market Practice

Apart from compulsory insurances which should be placed with approved insurers, there are no restrictions on where Swedishresidents or corporations may obtain insurance and they are free to buy cover outside the country if they wish. Given thesophistication of the local market and the presence of many major international insurers, there is little reason to seek insuranceprotection elsewhere.

Fines/Penalties

Fines can be imposed on those who intentionally or negligently mislead the supervisory authority .

United Kingdom

Insurers

While the FSMA 2000, as amended by the Financial Services Act 2012, is silent on the freedom of buyers and /or intermediariesto purchase insurance outside the country, where separate legislation makes insurance compulsory, eg for motor third partyliability, employers' liability, various professional indemnity covers and inland vessels covered by the British Waterways Act 1995, that legislation will normally stipulate that only authorised insurers (as defined above) may be used. Authorised insurers mustalso be used when providing statutory inspection of designated items of plant and machinery (pressure vessels, excavators andlifting equipment) subject to such requirements.




Under EU law, a risk is located in the UK if the insurance:

• relates to buildings and/or their contents and the property is located in the UK

• relates to a vehicle which is registered in the UK (this includes ships and aircraft)

• covers holiday or travel risks of up to four months duration and the policy is taken out in the UK.

If the above do not apply, the risk is still considered as being located in the UK if it covers a policyholder who is either:

• an individual who is habitually resident in the UK or

• a business with its business establishment to which the policy relates in the UK.

Exchange Controls

Currency exchange control is not an issue for non-admitted placements.

Tax

Premiums paid overseas are tax deductible for the buyer.


Insurers involved in non-admitted placements are not required to inform buyers that they are not subject to local supervision.

Multinationals


DIC/DIL


Premium Taxes

All premium taxes (including fire brigade charges) set out in the Taxation section of this report are due on premiums for non-admitted insurance. Insurers from other countries within the EEA or from outside the EEA accepting UK business shouldappoint a tax representative in the UK; if not, the insured may be held liable for any unpaid premium tax.

Buyers

While the FSMA 2000, as amended by the Financial Services Act 2012, is silent on the freedom of buyers and /or intermediariesto purchase insurance outside the country, where separate legislation makes insurance compulsory, eg for motor third partyliability, employers' liability, various professional indemnity covers and inland vessels covered by the British Waterways Act 1995, that legislation will normally stipulate that only authorised insurers (as defined above) may be used. Authorised insurers mustalso be used when providing statutory inspection of designated items of plant and machinery (pressure vessels, excavators andlifting equipment) subject to such requirements.

There are no adverse tax implications for any claims payments from abroad.



Intermediaries

Intermediaries (ie brokers or agents) have to be authorised to do insurance business.

Intermediaries are allowed to place business with non-admitted insurers.

Intermediaries involved in non-admitted placements do not have to be registered with the Financial Conduct Authority (FCA).

Where local risks are placed as part of a multinational insurance programme, brokers involved in non-admitted placements donot have to warn buyers that their insurer is not subject to local supervision.

Intermediaries operating in any EEA state (any EU member state, Iceland, Liechtenstein or Norway) are required to beregistered with their home authority and may conduct business in other EEA states under freedom to provide services providedthat they have made the necessary application by informing the supervisory authority in their home country.

Market Practice

Except for provisions on authorised insurers in the specific legislation establishing various compulsory insurances, in generalthere is nothing in UK law to prevent locally domiciled citizens or corporations from buying insurance outside the country on anon-admitted basis; while a proportion of the UK's non-life portfolio is placed abroad in this way, there are no figures availableon this.

Fines/Penalties

Directors of insurance companies that transact unauthorised business in the UK face prison sentences and/or fines.

There are no regulations to prevent UK insurers placing reinsurance contracts with reinsurers outside the country (and thereforenot subject to local supervision).



APPENDIX II: COMPULSORY COVERAGES

Argentina

• Motor third party.

• Third party bodily injury for passengers on public transportation systems.

• Workers' compensation insurance.

• Professional liability for reinsurance brokers.

• Third party liability for aircraft operators and personal accident cover for crew.

• Third party cover for lift operators.

• Third party cover for boilers (Buenos Aires).

• Third party liability for owners of dangerous breeds of dogs (Buenos Aires).

• Fire insurance for condominiums.

• A bond for travel agents.

• Pollution liability cover for enterprises that may cause pollution damage.

• A bond or liability insurance for directors and managers of public limited companies (public corporations) and privatelimited companies (limited corporations). In practice this would be a PI or D&O policy.

• Pollution cover for vessels carrying more than 2,000 tonnes of oil.

• Inland transit insurance or, in its absence, carriers' liability insurance for goods transported by road.

• Insurance or guarantee for clinical trials.

Australia

• Workers' compensation.

• Motor third party liability for death and bodily injury.

• Liability for maritime oil pollution.

Appendix II: Compulsory Coverages


• Aviation passenger liability.

• Satellite launch operators' liability.

• Builders warranty (all states and territories except Tasmania).

• Medical indemnity for medical practitioners.

• Professional indemnity for property, stock and business agents (New South Wales only).

• Professional indemnity for architects (NSW only).

• Professional indemnity for conveyancers (NSW only).

• Professional indemnity for tax and business activity statement (BAS) agents.

• Professional indemnity and fidelity guarantee for registered liquidators.

• Professional indemnity for insurance brokers.

• Professional indemnity for other retail Australian financial services licence (AFSL) holders.

• Professional indemnity for midwives.

• Health insurance for holders of subclass 457 visas and their families.

• Clinical trial liability insurance (Victoria and NSW).

• Residential strata insurance (property damage and third party liability).

Austria

• Motor third party liability.

• Workers' compensation (state scheme).

• Air carriers' third party liability.

• Third party liability in respect of carriage of passengers by land.

• Third party liability in respect of carriage of dangerous goods.

• Nuclear operators' liability.

• Pipeline operators' liability.



• Professional indemnity insurance for attorneys, public notaries, accountants, auditors, insurance intermediaries, financialadvisers, electronic signature certificators and music therapists.

• Professional indemnity for genetic technology operators.

• Professional indemnity for construction companies.

• Liability of operators of cable cars.

• Bonds in respect of travel operators.

• Product liability for manufacturers of pharmaceuticals.

• Liability for participants at clinical trials for pharmaceuticals and medical devices.

• Railway operator's liability (a financial guarantee or insurance).

• Shipments of waste (a financial guarantee or insurance).

• Professional indemnity for doctors and dentists.

• Hunters' liability.

• Dog owners' liability.

Belgium



• Liability of real estate agents.

• Liability of recruitment services.

• Liability of travel agents and tour organisers.

• Liability of architects, insurance and reinsurance intermediaries, banking and investment service intermediaries,accountants and tax advisers, chartered surveyors, notaries, securities issuers, debt collection and mediation.

• Environmental liability.

• Liability of care home services, rest homes, social services education and training.

• Liability of tourism, sports.



• Liability for provision of cross-border services.

• Air carriers' and aircraft operators' liability.

• Liability for animals.

• Liability in respect of citizen security, confidential data services, security services, supervisory bodies, local government,volunteers.

• Liability of nuclear installations and oil pollution.

• Liability in respect of healthcare (including clinical trials).

• Liability for transportation and vehicles.

• Liability (fire and explosion) for establishments open to the public.

• Fire insurance for housing association properties (under Flemish law).

• Hunting liability.

• Liability of internal market services, itinerant street vendors, service stations.

• Liability of slag heap reclamation.

• Liability for accidents at work.

• Railway operator's liability (a financial guarantee or insurance).


• Shipowners' liability (a financial guarantee or insurance).

Brazil

• Motor third party injury liability.

• Third party injury liability for owners of marine hulls of all types.

• Bodily injury to commercial aviation passengers (civil liability).

• Civil liability for owners of airplanes.


• Civil liability for construction contractors in urban zones for damage to people or property.



• Assets granted as guarantee for loans or credit facilities of public financial institutions.

• Surety for performance of obligations of contractors and real estate developers.

• Guarantee for payment by borrowers in construction projects.

• Property damage to divided buildings (condominiums) in accordance with Law No 4.591/64.

• Insurance against fire and transportation of goods owned by corporate entities located in Brazil or transported therein.

• Third party liability for damage to cargo transported by land or sea, in accordance with Law No 8.374/91.

• Export credit insurance financed by government institutions, when deemed appropriate by the CNSP, in accordance withDecree Law No 826/69.

• Crop insurance for recipients of credit from the government's National Programme to Strengthen Family Farming.

• Personal accident insurance for professional sporting organisations.

• Professional indemnity for reinsurance brokers.

• Shipowners' liability against oil pollution.

• Travel insurance for Brazilian visitors to Schengen states.

• Green Card motor insurance requirement for vehicles travelling to other MERCOSUR countries.

Canada

• Motor third party bodily injury and property damage, and automobile accident benefits coverage.


• Aviation liability.

• Marine passenger liability for vessel operators.

• Liability for pollution caused by oils spills from marine vessels.

• Professional indemnity for insurance brokers, investment brokers, real estate brokers, fund managers, land surveyors,doctors, lawyers, architects, engineers - all compulsory throughout Canada either by law or as an imposition of theprofessional associations.

• Professional indemnity for pharmacists and paralegals in Ontario.

• Insurances covering the cross-border shipment of hazardous materials.



• Property and liability insurance in respect of condominiums in Manitoba.

China

Update February 2014

According to press reports, the State Council is considering a proposal to improve food safety by introducing compulsoryliability insurance for food producers, processors, distributors and caterers.

Environmental liability has been made compulsory for specified highly polluting industries.

• Motor third party liability (national).

• Liability for transport of hazardous materials (most municipalities and provinces).

• Transport operators' liability for injury to passengers and damage to their personal property (most municipalities andprovinces).

• Nuclear liability (national).

• Liability for marine oil pollution (national).

• Workers' compensation (local government schemes in urban areas).

• Work-related injury insurance for coal miners (national).

• Work-related injury insurance for hazardous construction work (national).

• Employers' liability for workers in hazardous industries (known as production safety liability insurance) (national).

• Employers' liability and third party liability for high-risk industries (Beijing).

• Third party liability for spread of fire in public venues such as cinemas and hotels (some municipalities).

• Third party liability for boiler or gas explosion (some municipalities).

• Third party liability for schools (national).

• Third party liability for travel agents (national).

• Medical malpractice for hospitals and doctors (most municipalities).

• Professional indemnity for lawyers, accountants and architects (some municipalities).

• Professional indemnity for insolvency practitioners (national).



• Professional indemnity (or a cash guarantee) for insurance agencies and insurance brokers (national).

France

Update October 2013

According to EU Directive 2011/61/EU, alternative investment fund managers must be appropriately insured for theirprofessional liability, or must have additional own funds to cover this risk. The directive was transposed into French law byDecree No 2013-687 of 25 July 2013 (Decret No 2013-687 du 25 juillet 2013) which was published on 30 July.

• Motor third party bodily injury and property damage.

• Third party liability for the public transportation of passengers and goods.

• Third party liability for river transport.

• Insurance or other financial guarantee in respect of oil pollution

• Aviation and space liability.

• Professional liability for over 100 professions, including accountants, architects, auditors, barristers, insurance brokers,liquidators and receivers, motor surveyors, auctioneers, healthcare professionals and financial advisers.

• Third party liability for operators of nuclear plant.

• Professional liability for travel agents and estate agents.

• Hunting liability.

• Construction ("dommages ouvrage") cover for private dwellings.

• Decennial liability.

• Cable car liability.

• Liability for farmers and agricultural risks (disability and professional disease).

• Professional liability for medical centres for the handicapped, blood transfusion risks, biomedical research risks (clinicaltrials) and manufacturers of medical devices.

• Tenants' property damage liability.


• Railway operators' liability (a financial guarantee or insurance).




Germany

• Motor third party bodily injury and property damage.

• Aviation liability (aircraft operators and passenger accident).

• Third party liability for manufacturers of pharmaceutical products.

• Third party liability for clinical testing.

• Third party liability for genetic engineering operations.

• Third party liability for nuclear operators and users.

• Marine oil pollution arising from the International Convention on Civil Liability for Oil Pollution Damage.

• Professional indemnity for accountants, lawyers, auditors, tax advisers and insurance brokers.

• Professional indemnity for financial investment intermediaries.

• Common carriers' property damage liability.

• Third party liability for security firms.

• Third party liability for hauliers and removers.


• Third party liability for chimney sweeps.




• Third party liability for producers of animal feed.

• Professional liability for security personnel on ocean-going vessels.



Hong Kong

• Employees' compensation.

• Motor third party bodily injury.

• Third party bodily injury insurance for certificated local vessels and for vessels registered in the mainland and Macaoentering Hong Kong territorial waters.

• Civil aviation third party liability.

• Professional indemnity for insurance brokers.

• Professional indemnity for trustees of mandatory provident funds.

• Fidelity insurance for "licence holding institutions" dealing in securities and futures contracts.

• Building owners' corporation third party liability insurance.

• Directors' and officers' liability for Hong Kong Stock Exchange-listed companies.

India


• Third party liability for manufacturers of hazardous materials.

• Professional indemnity for direct brokers, reinsurance brokers and stockbrokers.

• Aviation carriers' liability.

• Professional indemnity for mutual fund managers.

• Oil pollution cover coverage in line with the International Convention on Civil Liability for Oil Pollution Damage, 1969,renewed in 1992, (amended in 2000) and often referred to as the CLC Convention.

In addition to the above-mentioned which are compulsory on a national level, there are some insurances that are obligatorylocally, such as those for residents' associations in Mumbai. It is not clear whether there are similar regulations in all other Indiancities.

Japan

• Compulsory automobile liability (CALI).




• Liability for nuclear risks.

• Workers' accident compensation for employees in industry and commerce (state scheme).

• Residential buildings defects liability insurance (cash deposit or insurance policy).

Korea (Republic of)

There is no certainty about the exact number of compulsory insurance classes since many are hidden away in industry-specificlaws and are not enforced in practice. The General Insurance Association of Korea estimates around 51 compulsory insurancesbut does not have a definitive list.

The most important compulsory classes are listed below.

• Compulsory automobile liability (CALI).

• Third party liability for gas accidents.

• Third party liability for sports centres, recreational facilities and gymnasia.

• Third party liability for schools, children's play-areas and kindergartens.

• Third party liability for pleasure craft.

• Road hauliers' liability.

• Household removers' liability.

• Third party liability for space launches and satellites.

• Nuclear liability.

• Marine pollution liability.

• Fire and liability for third party bodily injury caused by fire for buildings above 15 storeys, places of public entertainmentand other publicly accessible buildings.

• Third party liability for spread of fire in multi-tenure buildings (for specified businesses).

• Product liability for "hybrid" manufactures.


• Personal accident insurance for students and part-time assistants working in university laboratories.



• Foreign workers' guarantee insurance in respect of unpaid wages.

• Foreign workers' return cost insurance.

• Foreign workers' non-work-related accident insurance.

• Professional indemnity for foreign insurance brokers and agencies engaged in cross-border sales.

• Security for insurance brokers (cash deposit, bond or professional indemnity insurance).

Malaysia

• Motor third party bodily injury (unlimited).


• Professional indemnity for lawyers, insurance brokers and financial advisers.

• Travel insurance for bookings made through members of the Malaysian Association of Tour and Travel Agents.

• Foreign workers' guarantee (may also be covered by bank guarantee or cash deposit).

• Liability for oil pollution.

• Foreign workers' health insurance.

Mexico

A catalogue prepared in 2010 by the Mexican insurance association (AMIS), showed that there were 89 obligatory insurances inMexico, of which 50 were imposed at federal level and 39 at state or municipal level. A further trawl through more than 20,000items of federal and state legislation by AMIS during 2011 suggested the actual number may run into the hundreds. The industryis focused on enforcement and promotion of those it considers most relevant, with more detail given in the general third partysection of this report, since most of the compulsory insurances relate to this in one form or another.

The Federal District of Mexico City (DF) and most states have legislation on compulsory motor third party liability insurance,which is, however, only enforced in a very limited way, for instance on those transporting dangerous goods (under the GeneralLaw of Ecological Equilibrium and the Protection of the Environment) or fare-paying passengers (various laws and regulations).Other obligatory insurances include those listed below.

• Third party liability for fishing vessels (Marine Trade and Navigation Law).

• Third party liability for federal concessionaires (Federal Roads, Bridges and Motor Transport Law).

• P&I cover, port liability, customs agents' liability (Marine Trade and Navigation Law).



• Third party liability for aircraft (Civil Aviation Law).

• Carriers' liability (Regulation on Federal Motor Transport and Auxiliary Services).

• Third party liability for fare-paying passengers on all forms of conveyance.

• Liability in respect of transportation of dangerous or toxic substances.

• Hotelkeepers' liability (Federal Tourism Law).

• Fire, earthquake and catastrophe risks on time-share apartments (Norm NOM-029-SCFI-1998).

• Generators, importers or exporters of hazardous wastes (General Law for the Prevention and Integral Management ofWastes).

• Liability of airport, railway and cargo terminal concessionaires (various federal laws and regulations).

• Liability of tourism operators (Federal Tourism Law), including diving, sailing and adventure tourism.

• Marine oil pollution arising from the International Convention on Civil Liability for Oil Pollution Damage.

• E&O of insurance and bonding agents (Regulation for insurance and bonding agents).

• Childcare establishments must insure against risks which may affect the physical safety of their charges, with coverincluding third party and professional liability insurance (General Law on Providing Services for Childcare and InfantDevelopment).

New Zealand

• Comprehensive medical insurance for foreign students studying in New Zealand.


Philippines


• Personal accident for passengers of public land transportation operators and operators of ferries.


• Professional indemnity for insurance and reinsurance brokers.

• Public liability for businesses and condominiums (but only in some municipalities, notably Makati).



• Defined insurance coverage for overseas foreign workers.

• National health (state scheme).

• Oil pollution cover coverage in line with the International Convention on Civil Liability for Oil Pollution Damage, 1969,renewed in 1992, (amended in 2000) and often referred to as the CLC Convention.

Portugal

There are almost 200 obligatory insurances in Portugal and the list continues to grow. Many are not strictly enforced. Acomplete list of the legislation introducing the obligatory insurances is available on the regulatory authority's website.

Some of the most important are listed below.


• Hunters' third party liability.


• Fire in respect of residents' associations.

• Personal accident insurance for students, apprentices, firefighters, amateur sportsmen and women and high-competitionathletes.

• Third party liability for operators of micro-lights and paragliders.

• Third party liability for installers of gas pipelines.

• Third party liability for stevedores.

• Third party liability for pleasure craft.

• Third party liability for private security firms, pawnbrokers and travel agents.

• Third party liability for National Civil Protection Authority building inspectors.

• Professional indemnity for architects, auditors, notaries public, insurance brokers and agents and real estate agents.

• Professional indemnity for lawyers and legal companies.

• Professional and public liability insurance for private clinics and consulting rooms and the professionals operating inthem.

• Passenger liability insurance for aircraft operators.

• Guarantee bonds for administrators of joint stock companies.



• Liability insurance for managers of industrial parks.



• Insurance against oil pollution from ships.

• Clinical trials liability.

Singapore


• Aviation liability.

• Work injury compensation.

• Professional indemnity for individual lawyers and legal firms, architects and accountants, some fund managers, financialadvisers and insurance and reinsurance brokers.

• Third party liability cover for certain pleasure craft and vessels operating in the port of Singapore.

• Insurance against oil pollution from ships.

• Liability insurance for airports.

• Liability cover for clinical trials (required but not by statute).

• Private health insurance for all employees with a work permit or S Pass (for more information on this class please seethe separate Life and Benefits report).

Spain

Update November 2013

On 22 October 2013 the General Directorate of Insurance and Pension Funds (Direccion General de Seguros y Fondos dePensiones - DGSFP) increased the minimum limits for professional liability insurance for insurance and reinsuranceintermediaries to EUR 1,250,618 per claim and EUR 1,875,927 per year effective 15 January 2013. .

Royal Decree No 88/2013 of 8 February 2013 established obligatory professional indemnity insurance or a similarguarantee in connection with damages caused by lift maintenance companies.



Royal Decree No 1333/2012 has introduced obligatory liability insurance or a financial guarantee for bankruptcyadministrators.



• Passenger liability (personal accident) in respect of public passenger transport.


• Professional indemnity for insurance and reinsurance intermediaries, ship inspectors, auditors, companies offeringinvestment services, companies that grant credits or act as credit brokers, professional companies and preventionservices working in agronomy and occupational health on behalf of some autonomous regions.

• Decennial cover for private dwellings.

• Third party liability for pleasure craft and sports craft owners.

• Third party liability for vehicle testing stations.

• Aircraft third party cover in accordance with EU legislation.

• Third party liability in respect of contamination from fuel from ships.

• Clinical trials (a financial guarantee or insurance).



• Housing deposits (a financial guarantee or insurance).

• Third party liability in connection with air shows.

Sweden

• Third party liability for motor vehicles.

• Liability for nuclear installations.

• Oil pollution at sea.

• Professional indemnity insurance for lawyers, accountants, insurance brokers, real estate agents and the medicalprofession.



• Clinical trials in accordance with EU Directive 2001/20/EC.

• Decennial liability.

• Air carriers' and aircraft operators' liability.

• Railway operators' liability.


• Workers' compensation (state scheme complemented by collective agreed insurance cover written by specialist insurer).

United Kingdom

Update November 2013

Professional indemnity insurance for private health care professionals will become mandatory in January 2014 under theterms of the Health Care and Associated Professions (Indemnity Arrangements) Order 2013, which enacts EU legislation.


• Employers' liability.

• Third party liability for licensees of nuclear installations, owners of dogs which are included in the index of exempteddogs under the terms of the Dangerous Dogs Act 1991, licensees of riding establishments and keepers of dangerouswild animals.

• Professional indemnity for solicitors, insurance intermediaries, licensed conveyancers, osteopaths, chiropractors andclaims managers.

• Fraud and dishonesty of officers and employees of credit unions.

• Fire insurance of farm buildings in prescribed circumstances.

• Liability for aviation and space risks.

• Railway operator's liability (a financial guarantee is also acceptable).

• Shipments of waste (a financial guarantee is also acceptable).

• Shipowners in respect of oil pollution (a financial guarantee is also acceptable).



APPENDIX III: DEFINITIONS AND DISCLAIMER

Definitions

Insured payable taxes

Premium taxes and/or charges that are required to be paid by the insured. The tax or charge is named and the amount of the tax or chargepayable in %age or amount as applicable appears.

Where there are no premium taxes and/or charges that are required to be paid by the insured 'Nil' appears.

Insurer payable taxes

Premium taxes and/or charges that are required to be paid by the insurer and which cannot be passed directly on to the insured. The tax orcharge is named and the amount of the tax or charge payable in %age or amount as applicable appears.

Where there are no premium taxes and/or charges that are required to be paid by the insurer 'Nil' appears. This box does not include anycorporate taxes.

Local collection mandatory

'Yes' where the gross premiums for policies issued locally must be collected /paid locally, the funds either coming from the local insured or fromoverseas.

'No' where premiums for policies issued locally may be collected/paid to the producing office and the appropriate premium remitted back to thelocal office.

In situations where neither a 'Yes' nor a 'No' adequately answers the question a brief explanation is given.

Market cash remittance period

Where there is a statutory time period or a local market practice exists with respect to an accepted time period for the payment of premium, theperiod in days will be entered in the field. This includes where premium is due prior to binding.

Where there is no statutory time period 'No statutory requirement' appears.

Tariff rated

'Yes' where a line of business is subject to tariff rating, indicating where compulsory.

'No' where Tariff rating does not apply.

In situations where neither a 'Yes' nor a 'No' adequately answers the question a brief explanation is provided.

Non-Admitted Insurance - Insurers

Can an overseas insurer (i.e. an insurer located outside of the regulatory system of the country where the risk is located) provide insurance?

No (indicated by a red cross)

Appendix III: Definitions and Disclaimer


Insurers that are not registered and licensed in the jurisdiction may not solicit business in the country directly or through an intermediary, withthe exception of certain classes of risks such as marine insurance. Many countries do not allow overseas licensed insurers to carry on thebusiness of insurance in the territory without a licence.

Yes (indicated by a green tick)

Generally the local legislation of these countries either does not prohibit, is silent on, or specifically allows an overseas insurer to provideinsurance, though soliciting business in the country itself may not be allowed.

However, in many, if not all, instances compulsory classes of risks such as Employer's Liability, Motor Third Party etc must be covered by anauthorized local licensed insurer. In the European Union however, an insurer licensed in one member state is permitted to cover all risksincluding compulsory classes located in another member state under the Freedom of Services provisions within the EU Directives, providedcertain procedures have been followed.

Non-Admitted Insurance - Buyers

Can a buyer purchase insurance overseas i.e. outside of the regulatory system of the country where the risk is located?


Insurance buyers in that territory are not permitted to enter into contracts of insurance with overseas licensed insurers to cover the risks locatedthere. Local insurable risks can only therefore be covered by resident licensed insurers. In certain countries, under certain specificcircumstances, however, regulatory approval could be sought by the buyer to obtain formal permission to purchase insurance from an overseasinsurers. Certain countries allow the placement of certain risk classes with overseas insurers such as marine.


Generally the local legislation of these countries either does not prohibit, is silent on, or specifically allows a buyer to procure insurance from anoverseas licensed insurer.

However, in many, if not all, instances compulsory classes of risks such as Employer's Liability, Motor Third Party etc must be covered by anauthorized local licensed insurer. In the European Union however, an insurer licensed in one member state is permitted to cover all risksincluding compulsory classes located in another member state under the Freedom of Services provisions within the EU Directives, providedcertain procedures have been followed.

Non-Admitted Insurance - Intermediaries

Can a broker place insurance overseas i.e. outside of the regulatory system of the country where the risk is located?


Local intermediaries are prohibited from placing local risks with overseas insurers.


Locally licensed intermediaries are allowed to place local risks with overseas insurers

Market Practice

Information on what happens in practice regarding non-admitted insurance and the use of fronting.

Penalties

Penalties for non-compliance with legal restrictions on non-admitted insurance.



Compulsory Insurances

If the type of coverage listed is compulsory, we display a green tick.

If the type of coverage listed is not compulsory, we display a red cross.

Third Party Liability includes general liability and any other non-MAT third party insurance. It excludes motor, worker's comp, marine, aviationand transit.

Workers' Compensation means workers' compensation and employers' liability.

Disclaimer

Marsh has obtained this information from Axco Insurance Information Services under a license which permits Marsh to provide it to you solelyfor internal use within your organization. You may not integrate it into any database or hold any part of it on an intranet. Marsh has notindependently verified this information and makes no representation as to its accuracy or completeness. The content is not intended to be takenas advice with respect to any individual situation.



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