COMPLIANCE            OPTIMISE                      OECD                From the publishers of
Collaborate to meet   Consolidating (re)insurance   Tackling the Beps
regulation            functions                     hurdle

      he expert contributors featured within the Captive Review Global Programmes
      report are focused on guiding readers to best prepare for, and meet, the evolv-
      ing challenges affecting large corporates and their insurance requirements.

With multinational business the norm, firms are tasked with raising the bar to en-                         REPORT EDITOR
                                                                                                             Ross Law
sure regulatory compliance is met and to cater for increasingly sophisticated client                    +44 (0)20 7832 6535

                                                                                                     CAPTIVE REVIEW EDITOR
Due to steadily decreasing premium rates, the insurance and reinsurance markets                           Richard Cutcher
are also beginning to change. With this rising pressure and the likelihood of greater                     +1 (646) 891 2133
consolidation, there is a growing desire for corporates to use their captives more
actively.                                                                                          GROUP HEAD OF CONTENT
                                                                                                        Gwyn Roberts
As a result, enlisting a fronting partner capable of supporting captive managers
and owners through the likes of the OECD’s Base Erosion and Profit Shifting (Beps)                    HEAD OF PRODUCTION
                                                                                                       Claudia Honerjager
regime, is becoming essential.
                                                                                                          ART DIRECTOR
Elsewhere, the potential implications of the incoming IFRS 17 rule on captives are                        Jack Dougherty

outlined, along with the steps firms can take to ensure the wellbeing of their fre-
quent-flying employees.                                                                                     Nadja Tschopp

We hope this report will give readers valuable insight into how best to structure and                     SUB-EDITORS
                                                                                                         Luke Tuchscherer
manage their global programmes, maximise captive efficiency, and ensure multi-                             Alice Burton
jurisdictional compliance measures are met.                                                              Charlotte Sayers

                                                                                                     PUBLISHING DIRECTOR
Ross Law, report editor                                                                                  Nick Morgan
                                                                                                      +44 (0)20 7832 6635

                                                                                               SENIOR PUBLISHING EXECUTIVE
                                                                                                          Lucy Kingston
                                                                                                      +44 (0)20 7832 6569

                                                                                                   DATA/CONTENT SALES
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                                                                                                      EVENTS MANAGER
                                                                                                        Rachel Magnus
                                                                                                      +44 (0)20 7832 6517

                                                                                                        HEAD OF EVENTS
                                                                                                             Beth Hall
                                                                                                       +44 (0)20 7832 6576

                                                                                                             Charlie Kerr

                                                                                                Published by Pageant Media,
                                                                                             One London Wall, London, EC2Y 5EA

                                                                                             ISSN: 1757-1251 Printed by The Manson Group

                                                                                         © 2017 All rights reserved. No part of this publication
                                                                                         may be reproduced or used without prior permission
                                                                                                          from the publisher.

                                        CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018

6 PROTECTING THE WELLBEING OF                                       14 THE CHANGING INSURANCE MARKET
  EMPLOYEES OUT ON BUSINESS                                           Paul Wöhrmann and Helene Westerlind, of Zurich,
  MAXIS GBN reflects on the potential negative impact                  outline the benefits of having a fronting insurer
  of business travel, and the practices and innovations
  firms could implement to protect the wellbeing of their            16 GLOBAL PROGRAMMES: RAISING THE
  employees                                                            BAR
                                                                      Carol Barton, of AIG, describes the steps the firm is taking
9 ISSUES AND IMPLICATIONS FOR                                         to enhance their global programmes service offering
  Matthew Latham and Alex MacInnes, of XL Catlin,                   18 SERVICE DIRECTORY
  addresses the potential implications of the new IFRS 17
  rule on captives

  Karen Jenner, of FiscalReps, discusses the need for clarity
  in global programmes to ensure multi-jurisdictional
  compliance needs are met

                                    CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018
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            PROTECTING THE
             WELLBEING OF
            EMPLOYEES OUT
             ON BUSINESS
   MAXIS GBN reflects on the potential negative impact of business travel, and the practices and innovations
                    firms could implement to protect the wellbeing of their employees

             usiness travel is often seen as                                                             and strategies to help improve diet and
             glamorous and a perk of being                                                               activity while travelling.
             successful in your career but the                                                              This could include encouraging employ-
             reality – especially for employ-                     MAXIS GBN                              ees to explore alternative modes of trans-
             ees who travel a lot – can be                                                               portation – such as taking the train instead
quite different. Indeed, frequent, and par-                                                              of flying. If there is no way around flying, it
ticularly long-haul business travel can have                                                             is preferable to fly direct instead of taking
a negative impact on a company’s most            MAXIS Global Benefits Network (MAXIS GBN),               connecting flights that will contribute to
                                                 co-founded by MetLife and AXA in 1998 is one of the
important asset: its people.                                                                             tiredness and jet lag.
                                                 leading international employee benefits networks
   It might still be considered essential for    providing global service capabilities and delivering       There may also be opportunities to
economic development and global trade,           world-class employee benefits perspectives and solu-     substitute face-to-face visits with telecon-
but the inexorable growth in business            tions to clients in 115 markets around the world. For   ferencing. Often it is necessary to meet
travel is leading to real questions about the    more information, please visit        someone for the first time in person, but
health and wellbeing of the staff undertak-                                                              after that, video-conferencing can be an
ing the trips and the impact that frequent       tion’. Other impacts can include psycho-                acceptable substitute.
business travel has on both their mental         logical, social and physical effects, includ-
and physical condition.                          ing accelerated ageing, and a heightened                2. Create a corporate travel policy
   For these reasons, a broader company          risk of stroke, heart attack and deep-vein              As more and more people travel for busi-
consultation may be required when mak-           thrombosis.                                             ness, it is becoming increasingly important
ing corporate travel policy decisions. This         So, what should international compa-                 from an HR and duty of care perspective
means, specifically, including HR and well-       nies and, just as importantly, their staff do           to consider the impact on staff wellbeing
being teams as well as the procurement and       to try and reduce the negative effects of               and health, not just in terms of the physical
travel management departments already            frequent business travel? Part of the chal-             impact of long-distance travelling but also
involved in managing business travel pro-        lenge is that the requirements for each                 the mental and emotional aspects such as
grammes and policies today.                      person will differ depending on variables               being away from family and normal rou-
   It is frequent long-haul air travel, in       such as number of trips, length of stays,               tines.
particular, that is now understood to have       distance travelled and other factors such as               With corporate travel having a signif-
greater detrimental effects on staff than        an employee’s family status (having young               icant impact on employees’ wellbeing,
previously realised. And while jet lag is the    children, for instance) so a single cover all           morale and productivity, it is critical the HR
most commonly cited physiological impact         solution won’t help.                                    department be involved in the process of
of frequent business travel, it is not widely                                                            developing a company’s travel programme.
realised that the condition can persist for      Here are some suggested steps employers                 They can make sure that duty of care pol-
up to six days after flying. Nor is it under-     can take:                                               icies reflect the changing global sentiment
stood that fatigue from jet lag, combined        1. Help employees to help themselves                    towards business travel and the pressures
with travel stress, may turn chronic and has     Companies can look into employee educa-                 that can result.
been termed ‘frequent traveller exhaus-          tion programmes on stress management                       HR departments can also help to boost

                                           CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018
                                                                                                    can ‘combine virtual and augmented
                                                                                                    reality into one experience’ and that
                                                                                                    everyone in a business meeting can sit
                                                                                                    in the same room together, no matter
                                                                                                    where they are physically located. Par-
                                                                                                    ticipants can even share virtual white-
                                                                                                    boards. Could the VR headset be the
                                                                                                    technology that finally replaces business

                                                                                                  5. Revisit work conditions
                                                                                                  As well as looking at overall travel wellness
                                                                                                  programmes, organisations can consider
                                                                                                  amending working terms and conditions.
                                                                                                     Bearing in mind the fact that jet lag can
                                                                                                  affect travellers for six days, organisations
                                                                                                  could also allow staff to work from home,
                                                                                                  offer more flexible hours following a
                                                                                                  long-distance business travel trip, or space
                                                                                                  out long-distance trips around minimum
                                                                                                  rest periods. This way a frequent traveller
                                                                                                  can also avoid the stresses that a lack of
productivity by influencing the organi-           making it easier to take part in meetings,       family time can induce.
sation to create policies that enhance the       events, conferences, discussions and even           Finally, employers should establish
traveller experience and reduce stress. For      pitches, virtually – and it is expected that     guidelines whereby employees would be
example, if employees are often required         this focus will intensify as digital capabili-   allowed to fly business class on long-haul
to travel on weekends, HR may work to cre-       ties continue to improve.                        trips or book first class seats on trains when
ate a policy that allows travellers to extend       A recent report on the BBC looked at          travel time exceeds five hours.
their stay for a few days after completing       some of the new technologies focused on
their work and enjoy some leisure time at        making travel less stressful. From hotel         6. Manage travel risk
their destination.                               concierge services offering online check-in      The events of 9/11 acted as the catalyst for
                                                 and room service at the touch of a button,       introducing many standard travel risk pro-
3. Create a travel wellness programme            to wireless Bluetooth padlocks for luggage,      cedures today, such as systematic traveller
A travel wellness programme needs to focus       tech innovations are being developed at          tracking.
on specific environments that physically          quite a pace – including in the exciting area       Over half (51%) of companies provide
impact employees by encouraging certain          of artificial intelligence (AI).                  no traveller safety or travel risk training to
less healthy behaviours: unhealthy eating           • Teleconferencing solutions                  their employees.
choices and getting limited quality sleep.          Teleconferencing solutions and other
These and other behaviours all increase             remote technologies increasingly offer        Evidence suggests that using business travel
the average physical stress load individuals        companies, their employees and HR             to meet face-to-face definitely results in a
would experience under normal working               departments a workable alternative to         net positive for multinational companies,
conditions.                                         business travel.                              but we cannot ignore the science that tells
   A travel wellness programme can                                                                us there can also be losses in the long term
include advice on eating healthily when            • Instant translations                         if all too frequent travel has a negative
travelling, taking the right exercise, healthy     Many well-known companies are work-            impact on their employees’ health and pro-
flying, sleep and general stress manage-            ing hard to perfect instant translation        ductivity.
ment. Companies can also consider book-            software that removes the need for                Frequent, long-haul and lengthy peri-
ing rooms with hotel chains that have              costly human translators and that means        ods of business travel have been shown
gyms, and provide rewards for employees            more international meetings may be             to increase the risk of a variety of mental
who exercise while travelling.                     possible via video-conference or phone.        and physical health problems, as well as
                                                   Combine instant translation with virtual       exposing employees to security and safety
4. Use the power of technology                     reality and AI and there may soon be no        problems. Unhealthy, tired and stressed
Advancements in technology and the devel-          reason to take an international business       employees who lack free time, rest periods
opment of new communications platforms             trip ever again.                               and time for a personal life will ultimately
and solutions are giving business travellers                                                      affect a company’s bottom line.
and corporations more options when it              • Virtual reality in video-conferencing           To read more on this subject, down-
comes to long-distance communication.              According to a leading multinational           load our Whitepaper ‘BUSINESS TRAVEL –
Huge investments are being made by some            technology company, wearing a virtual          GOOD FOR BUSINESS, BAD FOR HEALTH?’
of the world’s leading technology firms in          reality (VR) headset means participants        at

                                           CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018
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            ISSUES AND
           Matthew Latham and Alex MacInnes, of XL Catlin, addresses the potential implications of the
                                       new IFRS 17 rule on captives

   nsurance buyers, investors and analysts                                                            including – notably for captive owners –
   have long noted the challenges involved                                                            Bermuda and the Cayman Islands. IFRS 17
   in comparing insurers’ results. This is                                                            would therefore not be relevant in these
   particularly the case with insurers that                  Matthew Latham                           circumstances.
   are not required to report their finan-                                                                Companies in many other jurisdictions
cials using US GAAP.                                                                                  are obligated or allowed to report their
   Among this set of insurers, there is con-   Matthew Latham is XL Catlin’s head of captive pro-     results using IFRS. IFRS is used in over 100
siderable variation between companies on       grammes, international P&C. He is based in London      jurisdictions globally, including the Euro-
                                               and can be reached at
how they measure profitability, account                                                                pean Union, Canada and Australia as well
for different types of expenses and con-                                                              as parts of Asia, South America and Africa.
solidate country-level data.                                                                             Our assessment is that IFRS 17 will affect
   In response, IFRS 17 was developed                                                                 captives domiciled in jurisdictions where
to create a common global insurance                           Alex MacInnes                           local laws/regulations require that IFRS
accounting standard that will make it                                                                 be used for entity-level reporting. For
easier for insurance buyers, investors                                                                example, a captive domiciled in Malta and
and analysts to understand and compare                                                                owned by a US-listed group may need to
                                               Alex MacInnes, XL Catlin’s head of finance, financial
insurers’ results. It achieves this by pre-    reporting & accounting, provided valuable support in
                                                                                                      follow IFRS 17 under Maltese reporting
scribing a standard accounting method          preparing this article.                                requirements, even though IFRS is not
for valuing insurance contracts.                                                                      applicable to the listed group accounts.
   The International Accounting Stand-         meet the needs of regulatory/tax author-                  However, another captive, domiciled in
ards Board (IASB) released this new rule       ities; although it notes that they could               Bermuda and owned by a Spanish-listed
in May 2017. It will apply for accounting      benefit from the way certain information                group, most likely would not have to apply
periods starting on or after 1 January 2021,   is reported on a balance sheet.                        IFRS 17 for local-entity reporting, since
although companies can implement it                The absence of any discussion of the               Bermudian insurance companies are not
before then.                                   effect of IFRS on captives is perhaps not              required to use IFRS.
                                               surprising since, in our view, it likely will             We also believe that, in most cases, the
Implications for captives: what does this      have no direct impact on many if not most              parent company would not need to mod-
mean for captive insurance companies?          captives.                                              ify significantly its IFRS group accounts
In all of the material published so far            Nonetheless, for those captives where it           to conform to IFRS 17, since a captive’s
about IFRS 17, there is no mention of cap-     applies, IFRS 17 could be time and resource            transactions and balances are typically not
tives. An “effects analysis” prepared by the   intensive due to the heavy operational                 material to the overall group – although
IASB, for instance, focuses primarily on       burden of implementing the standard rel-               the company would need to agree on this
“listed insurance companies”.                  ative to the size of the captive entity.               materiality assessment with its auditors.
    The absence of any discussion on cap-
tives could relate to the fact that the pri-   Some context                                           What you need to know if your captive is
mary objective of IFRS 17 – making it easier   Companies listed in the US, apart from                 required to use IFRS 17
to compare insurers’ results – is not rele-    certain foreign corporations, are required             The following is intended to outline only
vant to captives.                              to report their results using US GAAP. Since           the most salient provisions of IFRS 17.
    Moreover, the IASB explicitly acknowl-     US GAAP is widely used and understood,                 However, if your captive will be affected,
edges that IFRS 17 was not developed to        it is also permitted in other jurisdictions            we suggest that captive managers con-

                                         CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018

sult with their accounting/audit partners          claims have been incurred, and the              - changing the presentation of perfor-
about the specific ramifications of this             CSM is not calculated at all.                     mance in the profit and loss account.
new rule on their operations.
   Here’s where it starts to get technical:      • IFRS 17 also requires the company to             In summary, the impact of IFRS 17 on
   • IFRS 17 applies to insurance contracts        distinguish between groups of con-           captives that are required to use it will
     as opposed to entities; it also covers        tracts expected to be profitable and          largely depend on the nature of the con-
     reinsurance contracts that are held by        groups of contracts projected to be          tracts involved. Short-duration, short-tail
     a company.                                    loss making. Expected losses are rec-        contracts are likely to be least affected,
                                                   ognised in profit or loss immediately.        partly due to the simplified approach
  • It prescribes a standard accounting                                                            available for short-duration contracts,
    method for valuing contracts and                                                               and partly because the discounting and
    also stipulates that contracts carried      “For those captives                                risk margin adjustments are likely to be
    as assets be presented separately on                                                           less material.
    balance sheets from those carried as       where it applies, IFRS 17                               Also, there is no specific guidance on
    liabilities.                                                                                   how non-standard solutions like mul-
                                                  could be time and                                ti-line/multi-year contracts are to be
  • Insurance contracts, whether car-                                                              reported under IFRS 17. This is an issue
    ried as assets or liabilities, are to be     resource intensive”                               that warrants further discussions with
    reported as the total of the: fulfil-                                                           the IASB as the practical impact of split-
    ment cashflows – that’s the current                                                             ting multiple risks incorporated into a
    estimate of the amounts the company           Captives that are affected by this new rule   single contract, particularly where a CSM
    expects to collect from premiums           are most likely using IFRS 4 currently. Com-     is required, could be problematic.
    and pay out for claims, benefits and        pared to IFRS 4, some of the most significant         XL Catlin is currently assessing how
    expenses, including an adjustment for      new requirements in IFRS 17 call for:            and where IFRS 17 will impact its local
    the timing and risk of those amounts;         - including extensive – and potentially       operations. As we learn more about this
    and contractual service margin (CSM)            burdensome – additional informa-            new accounting standard, we will also be
    – the expected profit over time as the           tion in the financial statements about       cognizant of the potential impacts on our
    insurance coverage is provided;                 claims liabilities, changes in risk and     clients and especially our captive clients.
                                                    the effects of discounting;                 As new issues and implications are uncov-
  • For certain contracts – including             - discounting the liability for claims        ered, we will continue to share our obser-
    those with coverage terms less than             and including an explicit risk adjust-      vations with the captive community.
    12 months – a simplified approach can            ment when measuring it;
    be used. With this method, fulfilment          - recognising profits using the contractual    Source: IFRS Standards, Effects Analysis, IFRS 17, Insur-
    cashflows are not calculated until               service margin, where required; and         ance Contracts

                                         CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018
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              Karen Jenner, of FiscalReps, discusses the need for clarity in global programmes to ensure
                                     multi-jurisdictional compliance needs are met

             s increasing focus on global                                                               risk which is exempt from IPT) as: “…such
             insurance programmes and                                                                   amount as, with the addition of the tax
             ensuring compliance con-                                                                   chargeable, is equal to the amount of the
             tinues, there is often a lack               Karen Jenner                                   premium”. In practice, this means that
             of understanding or clarity                                                                HRMC view the gross premium to include
on who is responsible for overall compli-                                                               tax regardless of whether it is split out on
ance. In theory much onus is placed on the        Karen Jenner is client director at FiscalReps. She    the invoice. In Germany, however, should
insurance company, however in practice            joined the company as an insurance consultant         the invoice not separately identify the
                                                  and has over 25 years of experience in the insur-
the onus of Insurance Premium Tax (IPT)                                                                 premium tax, the authorities may view
                                                  ance industry. She is ACII qualified and has held
compliance and filing of other indirect            previous roles with AIG and Willis. Jenner provides   the total premium charged to be net, and
insurance taxes falls on various parties,         invaluable global technical insurance guidance to     charge tax on this full amount.
depending on the type of taxes due and            FiscalReps through her experience of global insur-       This is the most common regime for
territories involved.                             ance programmes and non-conventional insurance.       domestic and licensed insurance business,
  Aside from who is accountable, there                                                                  and outside the EU is applied to Goods and
are varying and different requirements            separately identifying the premium tax                Services Tax (GST) on insurance premiums
around calculation and invoicing which            from the risk premium, and the insurer                in Australia and New Zealand, premium
are key to ensuring full compliance on any        then deducting the tax from the payment               taxes in California, and also in South Africa
global insurance programme.                       received for onwards settlement to the                for the purpose of calculating VAT.
  In considering who should ‘pay’ the tax,        authorities.
we are confronted with two key parties:                                                                   Insurer borne tax
the tax debtor – the party who bears the                                                                  Here the insurer is expected to bear
economic cost of the tax – and the tax                                                                    the economic cost of the tax, and is also
payment debtor – the party responsible                “There is often a                                   responsible for filing and settlement to
for filing returns and settling taxes with
the authorities.
                                                    misconception that                                    the authorities. The insurer should gen-
                                                                                                          erally not invoice the tax to the insured,
  Regardless of who bears the economic             intermediaries do not                                  but must deduct this amount from the
cost of the tax, the responsibilities of                                                                  risk premium invoiced to the insured
the tax payment debtor can fall to vari-             have any liabilities                                 for filing and settlement. Generally, in
ous parties to the global insurance pro-                                                                  this model the tax is not calculated on
gramme:                                              arising from taxes                                   a per policy basis, but across all risks
  • Insurer                                                                                               on the insurer’s book of business over a
  • Policyholder                                    on global insurance                                   fixed period. While many insurers gross
  • Insured
  • Intermediary or broker
                                                       programmes”                                        up risk premiums to factor this addi-
                                                                                                          tional cost in the total premium cost,
  • Fiscal representative                                                                                 the insurer should not itemise the tax
                                                                                                          amount on any policy documents or
Traditional indirect tax                             Although simple, the traditional model             invoices. Examples of this regime are more
In this model the tax debtor is generally         can cause some issues around the calcula-             common in Europe, and are applied to IPT
the policyholder, with the tax payment            tion method as, even across the EU, differ-           in Hungary and the Non-Life Insurance
debtor being the insurer, with tax invoiced       ent tax authorities look for different cal-           Levy in Slovakia.
in addition to the risk premium. Responsi-        culation models. In the UK Section 50(2),
bility for calculating, collecting and settling   FA 1994 describes the chargeable amount               Cross border
the tax falls to the insurer, with the invoice    (where no part of a premium relates to a              For cross-territory insurance, not includ-

                                           CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018
                                                                                                  and paying to the authorities, in addition
                                                                                                  to the full amount of premium invoiced by
                                                                                                  the insurer.
                                                                                                     It is important to consider whether the
                                                                                                  recipient of the supply is GST/VAT regis-
                                                                                                  tered and whether the transaction is B2B or
                                                                                                  B2C. Other issues with this model include
                                                                                                  understanding the place of supply rules for
                                                                                                  services. Where the policyholder is respon-
                                                                                                  sible for settlement, the administration is
                                                                                                  fairly simple, with any reverse charge being
                                                                                                  added to their period GST/VAT return. The
                                                                                                  taxpayer may be able to recover the tax if
                                                                                                  they are making taxable supplies.

                                                                                                  Other parties
                                                                                                  In global programmes where the insurer is
ing Freedom of Services (FoS), the onus          in making tax declarations, communica-           liable to account for the tax, the question of
of collection and settlement of indirect         tions with the taxpayer, and legal juris-        co-insurance arises. Unfortunately, there
taxes tends to fall on the policyholder, or      diction failing to be applicable to overseas     is not always a consistent approach as to
an insurer’s agent or fiscal representative.      taxpayers.                                       whether it is the lead insurer, or the lead
As ever, where there is a rule, there is an         The more common result of writing             and follow who are responsible for taxes.
exception: in the UK, the responsibility to      non-admitted business is for a tax regime        In the UK, HMRC expect each co-insurer to
make declarations on insurance under-            to apply to the insurance buyer i.e. local       account for IPT on their share of the risk,
written overseas remains with the insurer.       insured. In these regimes the ultimate           whereas in the Netherlands, the lead may
In some territories a fiscal representative is    policyholder can find themself liable for         account for the full tax if certain condi-
required to settle taxes on behalf of over-      Income or Withholding taxes, Goods and           tions are met (including the absence of a
seas insurers writing on a cross border          Services tax, VAT and Stamp Duties.              taxable intermediary). In France, the lead
basis. A fiscal representative is a person or                                                      is expected to account for the full IPT on a
company resident in the country of taxa-         Withholding taxes                                contract, whereas in Germany, one EU/EEA
tion who agrees to accept joint and several      Where withholding taxes apply to                 co-insurer can be nominated, in writing,
liabilities, together with the taxpayer, for     cross-border insurance, the tax debtor is        by other co-insurers to account for full IPT.
the payment of taxes due. These are legal        commonly the insurer, and the tax pay-           In many more countries, the law is silent.
appointments and differ from tax agency,         ment debtor role falls to the policyholder,         There is often a misconception that
and are a voluntary arrangement governed         responsible for calculating the tax, (not evi-   intermediaries do not have any liabilities
by a contract between the insurer and            denced on policy documents or invoices)          arising from taxes on global insurance pro-
agent.                                           and then for deducting and withholding           grammes. This is not the case. In Europe,
   The fiscal representative takes responsi-      the tax from the invoiced amount and set-        in the UK, fees charged by an intermedi-
bility for filing all tax returns and payments    tling to the authorities. With no obligation     ary on policies subject to the higher rate
due on behalf of the insurer and can be a        to the insurer the policyholder needs to be      of IPT must be settled by the intermediary.
connected person. A captive may choose           aware of the tax regime in existence and         In the Netherlands, local intermediaries
to appoint a local subsidiary to act as fiscal    its operation. The insurer cannot be pur-        tend to be the default taxpayer, not the
representative. Other insurers may utilise       sued for unpaid amounts and therefore            insurer. Outside of Europe, in Australia
their own branch network, though many            has no legal requirement to be aware of the      where non-admitted business is written
appoint a formal independent fiscal repre-        impact on their premium. This can lead to        via an authorised agent in Australia, the
sentative.                                       uncompetitive pricing in writing non-ad-         agent assumes responsibility for premium
   The requirement to appoint a fiscal rep-       mitted business, as the insurer may choose       tax compliance. In Germany, an agent
resentative has decreased over recent years      to gross up premiums to avoid eroding            with residence in the EU/EEA is authorised
for FoS business as it is seen to conflict with   technical underwriting premiums.                 to receive insurance premium and take
EU principles. However a few territories         It may be possible to mitigate, avoid or         responsibility for premium tax settlement
still uphold this requirement (Cyprus and        recover tax due depending on the terms of        if authority has been delegated in writing.
Greece). Aside from FoS business there are       any double tax treaty in force between the       In conclusion, it is important that all par-
some notable countries where a fiscal rep-        territory of the non-resident insurer and        ties involved in a global programme be
resentative is required for other cross-bor-     the territory of taxation.                       aware of who was primarily responsible
der insurance, including the Netherlands,                                                         for the compliance and the hierarchies
Denmark and Finland. This requirement            GST/VAT – reverse charge                         in place. If tax authorities are not able to
has historically resulted from the insurer       Here the roles of the tax debtor and tax         recover from the tax payment debtor in the
not having a presence in the territory of the    payment debtor fall to the policyholder          first instance, the law often provides them
tax liability, therefore creating difficulties    who is responsible for calculating the tax       with the right to pursue other parties.

                                           CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018

        Paul Wöhrmann and Helene Westerlind, of Zurich, outline the benefits of having a fronting insurer

           urrently the entire insurance                                                                 now better informed about their risks and
           and reinsurance market is in                                                                  keep the captive share on net. These own-
           a state of great change, and                                                                  ers ask for cross-class balance sheet pro-
           over time could become even             Helene Westerlind                                     tection (see further Wöhrmann/Cunning-
           more consolidated, because the                                                                ham) which can include the reinsurance of
industry is under rising pressure. This is                                                               Employee Benefit programmes.
largely due to the steadily decreasing pre-     Helene Westerlind joined Zurich Insurance in Stock-         On the other hand captive owners move
mium rates leading to lower margins while       holm, Sweden in 2003 as a liability claims adjuster      from a non-proportional to a proportional
                                                and subsequently moved into liability underwriting
additional capacity is entering from the                                                                 reinsurance structure in order to capture
                                                where she was responsible for both domestic and
financial market.                                international programme business. Westerlind was         the entire arbitrage market potential by
   Interestingly, we have experienced these     appointed into her current role as global head of        accessing the reinsurance, retrocession
trends in our current competitive mar-          International Program Business for Commercial Insur-     and ILS market (Amar/Braun/Eling).
                                                ance in 2016 managing a global team of 200 FTEs
ket environment. We are seeing that large                                                                   Fronting insurers are then faced with
                                                and responsible for the international customers of
European captive owners are using their         commercial Insurance.                                    complex customer service expectations,
captives more actively (Wöhrmann/Ruof)                                                                   especially if the fronting insurer is also
in order to:                                                                                             acting behind the captive on a retroces-
   - optimise insurance and reinsurance                                                                  sion panel. Such risk transfer levels require
     structures                                                                                          proven IT interfaces between the retroces-
   - bring two worlds (life and non-life)           Paul Wöhrmann                                        sion, reinsurance and insurance level.
     into one reinsurance captive                                                                           Therefore, it is vital that captive owners
   - benefit from arbitrage opportunities                                                                 select a well-rated and reliable corporate
     in the markets (pricing, coverage and      Paul Wöhrmann, head of Captive Services Europe,          insurer capable of paying and servicing
     capacity)                                  Middle-East, Africa, Asia Pacific and Latin America,      claims, which are ultimately reinsured to
   - strengthen the core business of the        has developed a reputation as one of the world’s lead-   the captive.
     captive owner                              ing authorities on captive strategy and was ranked          Zurich has the experience required
                                                the third most influential person in the industry by
   - develop solutions for new risks                                                                     to manage such complex captive owner
                                                Captive Review in 2016. He has been with Zurich for
   As a consequence, larger internationally     more than 25 years and leads a team of experts which     requirements on a global scale and captive
operating industrial captive owners need        is located in four countries across the world.           owners can expect comprehensive support
highly experienced insurance companies                                                                   that is consistent, end-to-end and world-
as fronting partners, to allow them effi-        the financial incentive for captive own-                  wide (see Captive Related Services operates
cient access to the reinsurance market (see     ers to influence future frequency claims                  across all geographies, underwriting pro-
Common Single Parent Reinsurance Cap-           through active risk management and the                   cess and Zurich Group, p. 15).
tive Structures, p. 15).                        systematic identification, assessment and                    Zurich can provide their captive cus-
   Having a captive on board allows their       improvement of risk. As a consequence,                   tomers with so-called “captive health
owners to optimise pricing, coverage and        the cost of risks can be reduced, and prof-              checks” (Webinar) as a separate service.
capacity strategies across the insurance        itability will be protected by introducing               The individual captive retention is bench-
cycle.                                          appropriate risk control measures, which                 marked across the same industry by actu-
   Large European captive owners have           reduce future claim frequencies and the                  arial methodologies. Zurich’s comprehen-
successfully started to follow such a strate-   cost of premiums (Krause/Wöhrmann).                      sive data makes such analysis possible and
gic approach under a holistic view (life and       Despite the soft market development,                  provides added value for captive customers
non-life/ see further Wöhrmann/Marini).         we have observed that within the portfolios              using this service.
   In the past, the majority of captive rein-   of our captive customers, there has been a                  Furthermore, captive owners should
surance programmes were reinsured by            more active use of reinsurance captives –                consider selecting one strategic insurance
fronting insurers on a non-proportional         especially for large captive owners.                     fronting partner that can operate wherever
basis within primary layers. This is due to        On the one hand, captive owners are                   the customer has a presence, someone who

                                          CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018
can cope with the increasingly complex
regulatory and tax landscape. An exam-
ple of such an increase in tax complexity
is OECD’s Base Erosion and Profit Shifting
(Beps) initiative, which may make it nec-
essary for captive owners to review their
captive set-up from a tax perspective (see
further D. San Millan and D.J. Kusaila).
   An effective and professional captive
fronting partner should be able to:
   • simplify management across lines of
   • solve complex insurance problems
   • access a strong and reliable global net-
   • address insurance premium tax com-
     pliance for captive programmes
   • provide accurate, transparent and
     timely bordereaux reporting through a
     single ceding party
   Customers who consider a change
in their buying behaviour for arbitrage
requirements, need an insurance partner
with a specific proposition to meet their
needs. This partner should be able to deal
with the new and growing demand by
reinsurance captives to leverage tangible
benefits of portfolio diversification and to
ensure that capital requirements are met.
At Zurich, we see arbitrage in three differ-
ent categories where captive owners can
capture tangible benefits.
   Firstly, pricing arbitrage especially for
medium and high excess layers between
the insurance, reinsurance and ILS market.
   Secondly, coverage and wording arbi-
trage in order to issue tailor-made insur-
ance programmes, for example on cyber
risk with wordings that meet the captive
owner’s expectations. Captives would
accept insurance policy exclusions. Hence,
the wording of the insurance coverage
could be much broader than that of the
retrocession level behind the captive. In                       Conclusion                                                       work infrastructure available, for a fee,
other words, the captive would cover any                        The current market environment provides                          for more lines of business. Since the retro-
deviation.                                                      attractive and comprehensive risk self-                          cession level, in addition to the insurance
   Finally, capacity arbitrage. Capacity                        financing and risk transfer solutions,                            programmes, is often an integral part of a
arbitrage has been experienced in the                           which could create persistent business                           captive’s involvement, insurers who can
banking and mining industry. Such a solu-                       opportunities for various market partici-                        serve in a customised manner, with trans-
tion generally requires substantial captive                     pants. Corporate insurers which operate                          parent premiums and claims information,
risk retention and attention for counter-                       globally might find they are increasingly                         will be prioritised as future partners of
party credit risk matters.                                      asked by captive owners to keep their net-                       captive owners.
Quotes: S.B. Amar/A. Braun/M. Eling, Alternative Risk Transfer and Insurance-Linked Securities: Trends, Challenges and New Market Opportunities, Institute of Insurance Economics I.VW-HSG,
University of St. Gallen (2015)
P. Wöhrmann/A. Ruof: “What to look for in an insurer’s captive proposition”, in: Captive Review Magazine, October 2013, p. 44 f.
P. Wöhrmann/P. Marini: Captives come of age, in: Captive Review Solvency 2 Report, October 2014, page 6 f.
P. Wöhrmann/Jean-Pierre Krause: “Are you engineering your risks effectively”, in: Captive Review Magazine, March 2014, p. 46 f.
P. Wöhrmann/T. Cunningham: Efficiency and Profitability, in: Captive Review - Global Programme Report, edition October 2015, P. 14-15
D. San Millan: BEPS not a threat to captives if used correctly: San Millan, in: Commercial Risk Online on August 9, 2017 (
D.J. Kusaila: How Will BEPS Affect Captive Insurance?, in: Captive Review February 2016, p. 23 f.
Webinar: How To Optimise Captive Underwriting, Captive Review January 26, 2017 (

                                                        CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018

             RAISING THE BAR
Carol Barton, of AIG, describes the steps the firm is taking to enhance their global programmes service offering

              s our new chief executive Brian                                                               Larger clients with captives can take a
              Duperreault commits to a new                                                               more centralised approach to local risks
              era of growth, AIG is respond-                                                             and benefit from geographical diversifica-
                                                         Carol Barton
              ing to the increasingly sophis-                                                            tion. Of course, captives also enable access
              ticated needs of its multina-     Photo by Barbie Schwartz                                 to reinsurance markets that would not be
tional client base. Carol Barton, president                                                              available at a small, local level. And, it’s not
                                                Carol Barton is president of AIG Multinational. She is
of AIG Multinational, explains why AIG has      responsible for the worldwide leadership and strate-     just large clients who benefit; more and
been making significant investments in           gic direction of AIG’s multinational business as well    more middle-market companies expand-
people, process and technology in order         as a number of assigned countries around the world.      ing outside their borders are realising the
to set a new industry standard for delivery                                                              value of a global approach and are looking
of global programmes to help clients meet       ing and have the potential to lead to some               to their brokers and insurers to assist.
their risk, governance and contract cer-        uncomfortable questions from the C-Suite                    As a result, our multinational business
tainty objectives.                              at the time of a major event.                            has been experiencing exponential growth
   Many risk and insurance managers of                                                                   in new clients and programmes year-on-
large corporates will be familiar with the      Scaling up to meet the challenge                         year. The AIG Global Network comprised of
challenges around structuring optimal           In an increasingly global and intercon-                  strong local country operations and strate-
compliant multinational programmes and          nected world, the past decade has seen a                 gic network partners is committed to deliv-
then fulfilling regulatory requirements to       steady shift towards multinational insur-                ering world class expertise, solutions and
enable issuance of local policies. Policies     ance programmes. And this is expected to                 service to clients in over 215 jurisdictions
can be days, weeks or even months late as       continue, particularly with new growth in                around the world.
multiple stakeholders chase after missing       emerging markets. Forty per cent of For-
documentation. This leads to unnecessary        tune’s Global 500 multinational companies                Re-engineering the process
frustration and unintended and redundant        are now headquartered in Asia Pacific,                    In a significant effort to reshape how mul-
costs at a time when efficiency is of utmost     from only 24% in 2006. From an industry                  tinational business is conducted, AIG has
importance in today’s globally competitive      sector perspective, financial services insti-             spent the last two years reengineering the
landscape. Additionally, financial and reg-      tutions are leading the charge, according to             process in collaboration with our broker
ulatory risks associated with not having a      research by Willis Towers Watson.                        partners and clients. And it is no mean
contract in place at coverage inception can        For large global corporate insurance                  feat to deliver all policies within a multina-
have a devastating impact. What if there        buyers, the benefits are clear. They maxim-               tional programme by inception – whether
is a loss in the days following the effective   ise global insurance capacity and minimise               you have exposures in 10 countries or 100.
date and the wording has not materialised?      cost, while maintaining centralised con-                 However, this has now been achieved on
What if the claim occurs in a country where     trol over risk management and risk trans-                multiple occasions through close collabo-
there is no coverage if the local policy has    fer practices. And in an age of data and                 ration with all parties, including our bro-
not been accepted and signed? Will the          automation, they allow organisations to                  ker partners and multinational clients.
insurer be able to adjust the claim locally?    consolidate and analyse loss information,                   Last year, we rolled out a globally con-
Can the claim settlement be made locally?       enabling them to strengthen resilience by                sistent end-to-end process across the full
What penalties or fines may be incurred?         identifying areas of weakness or potential               breadth of AIG general insurance prod-
   These are just some of the concerns          vulnerability before they become an actual               ucts delivered around the world. This new
arising from the traditional way of work-       problem.                                                 approach shifts all of the key activities from

                                          CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018

after the effective date to well in advance      pre-inception policy issuance.                       Our award-winning MN Xpress tool
of inception. Several months later, for the         Another important part of the process         enables the end-to-end process by stand-
first time in our company history, we were        involves scenario planning and testing, sit-     ardising and automating the workflow pro-
able to deliver all local policies for a major   ting around a table with all parties – includ-   cess for our clients’ programmes, however
multinational client before the effective        ing claims handlers – to consider how            global, however complex in nature. It pro-
date, ensuring full contract certainty. Now      the programme would actually respond             vides territorial information and key doc-
this is not something that can be achieved       in the event of a major loss anywhere in         umentation requirements upfront, rather
in isolation; it is very much a collaborative    the world. Such exercises challenge risk         than post-purchase. Customer require-
process that relies on following pre-estab-      and insurance managers to think about            ments are communicated at the quotation
lished timelines with effective stakeholder      what limits they really need, whether they       stage well in advance of binding.
communication, so roles and responsi-                                                                    The myAIG Multinational Client Por-
bilities are clear. Additionally, significant                                                         tal offers clients instant insight into their
investments have been made in tech-                                                                  controlled master programme and spe-
nology to deliver tools to both simplify           “We have taken our                                cific policy details, such as key dates and
and efficiently manage the process and                                                                premium amounts. We have taken our
advanced timeline.                                 portal a step further                             portal a step further than most, ensuring
   It is truly encouraging to see both cli-                                                          it captures information at a highly gran-
ents and broker partners getting excited
                                                  than most, ensuring it                             ular level, allowing clients to download
about these capabilities and working
together; our goal of full contract cer-
                                                 captures information at                             policy documents and invoices and to
                                                                                                     tap into robust business intelligence.
tainty at inception has now become a             a highly granular level”                                Without these technology platforms
reality for multiple clients having pro-                                                             to enable our process we would fail to be
grammes across all of our products.                                                                  competitive in a rapidly-growing mar-
   Feedback has been extremely positive                                                              ket. And as is always the case, it is impor-
from those who have embarked on this             require local policies or can replicate the      tant to keep one eye on the future. Take our
journey. So much so that we are beginning        master coverage everywhere. There is no          blockchain pilot with IBM that successfully
to see contract certainty become an inte-        one-size-fits-all, which is why it is essen-      completed a multinational programme on
gral part of the renewal conversations with      tial to understand the client’s risk appetite,   behalf of Standard Chartered. The pio-
our multinational clients. For example,          philosophy and multinational exposures.          neering programme uses blockchain to
one company is currently restructuring its                                                        manage complex coverage across the UK,
financial lines programmes with the inten-        Blockchain, automation and the missing link      US, Singapore and Kenya for the bank, and
tion of placing part of it out of the London     Investment in technology and analytics has       is certainly indicative of further efficiencies
market. Part of the discussion as they went      been the secret sauce in achieving contract      that are likely to be brought to the process
through this was around who could deliver        certainty for multinational programmes.          in the future.

                                           CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018
                              AIG FRONTING AND CAPTIVE SERVICES
                              Salil Bhalla, email:, Tel: +44 (0)207 954 8492
                              58 Fenchurch Street, London EC3M 4AB

                              We offer a full range of fronting and captive services. Our Captive Management Services group provides captive advisory
                              and managment services regarding the feasibility, structuring, formation and overall management of captives, and offers
                              cell captive facilities. Our programs extend to all types of exposures and industries.   Disclosure: Insurance and services provided by member companies of American International Group, Inc. Coverage may not be available in all
        tiveservices          jurisdictions and is subject to actual policy language. For additional information, please visit our website at
                              © American International Group, Inc. All rights reserved.

                              EY LLP
                              Paul H. Phillips III, Partner, EY Global Captive Network Co-Leader, email:, Tel: +1 214 754 3232
                              2323 Victory Avenue, Suite 2000, Dallas, TX 75219

                              EY takes a multidisciplinary approach in addressing the alternative risk market through the EY Captive Services Team. The
                              EY Captive Services Team provides technical knowledge and industry experience, paired with a holistic portfolio of service
                              offerings (including assurance, actuarial, risk management, tax consulting, transfer pricing and compliance services) to
                              help clients navigate the current environment, evaluate risk and risk financing structures, reduce expenses, maintain com-             pliance and use capital more effectively within their organizations.

                               Karen Jenner, email:, Tel: +44 (0)207 036 8070
                               200 Fowler Avenue, Farnborough Business Park, Farnborough, Hampshire GU14 7JP

                               Established in 2003, FiscalReps is an independent specialist indirect tax consultancy and market leader in premium taxes
                               globally serving over 400 clients. It transfers over €500m in client funds to tax authorities and processes over 25,000 tax
                               returns annually.
                               From its UK head office, FiscalReps provides clients with a guaranteed single point of contact and provides four core ser-         vices: Outsourcing, Technology, Consulting and Training.

                               GENERALI EMPLOYEE BENEFITS
                               Simona Frisoli, email:, Tel: +32 2 537 27 60
                               Avenue Louise 149, Brussels - Belgium

                               The Generali Employee Benefits (GEB) Network is a strategic unit of the Generali Group and exclusively focused on provid-
                               ing employee benefits solutions for corporate clients.
                               With 50 years’ experience in supporting the success of its global clients, GEB is recognized as a leading employee benefits
                               provider. It operates the world’s largest network by bringing together the capabilities of over 120 countries to serve more             than 1,500 multinational companies.

                               MAXIS GLOBAL BENEFITS NETWORK
                               Farzana Akther, email:, Tel: +44 (0)20 3876 2921
                               1/F The Monument Building, 11 Monument Street, London, EC3R 8AF

                               Co-founded by MetLife and AXA, two of the biggest and most trusted insurance companies in the world, MAXIS Global
                               Benefits Network is a network of nearly 140 insurance companies in 115 markets combining local expertise with global
                               insight. Together, we help multinational employers deliver the employee benefits they need to care for their people and          meet their strategic goals.

                               XL CATLIN
                               Matthew Latham, email:, Tel: +44 (0)207 933 7203
                               20 Gracechurch Street, London, EC3V 0BG, United Kingdom

                               XL Catlin. From insurance to reinsurance, a changing world needs new answers. We’re here to find them.
                               We are one of the world’s largest providers of global commercial insurance programs with 30+ years of network manage-
                               ment experience. We lead more than 70% of the 3000+ global programs we participate in. We also help clients use, opti-           mize and modify their captive structures, allowing each captive to meet its strategic goals.

                               ZURICH INSURANCE COMPANY LTD
                               Dr. Paul Woehrmann, email:, Tel: +41 (0) 44 628 82 82
                               Austrasse 46, 8045 Zurich, Switzerland

                               Zurich Insurance Group (Zurich) is a leading multi-line insurer that serves its customers in global and local markets. With more
                               than 55,000 employees, it provides a wide range of general insurance and life insurance products and services. Zurich’s custom-
                               ers include individuals, small businesses, and mid-sized and large companies, including multinational corporations, in more
                               than 170 countries. The Group is headquartered in Zurich, Switzerland, where it was founded in 1872. The holding company,
                               Zurich Insurance Group Ltd (ZURN), is listed on the SIX Swiss Exchange and has a level I American Depositary Receipt (ZURVY)      program, which is traded over-the-counter on OTCQX. Further information about Zurich is available at

                                        CAPTIVE REVIEW | GLOBAL PROGRAMMES REPORT 2018
When it comes to choosing a partner for your
Captive programme, you’ll want one that has been awarded
not just for its own success, but the success it brings to
a client’s business. By combining global and local expertise,
we can give you a solution that meets your individual
needs, and together build a Captive programme everyone
can raise a glass to.

XL Catlin, the XL Catlin logo and Make Your World Go are trademarks of XL Group Ltd companies.
XL Catlin is the global brand used by XL Group Ltd’s (re)insurance subsidiaries.
Road to the top
is full of risks —
to be ahead,
plan ahead


                                                                                        ©2017 EYGM Limited. All Rights Reserved.
Paul H. Phillips III        Karey Dearden                James Bulkowski
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+1 214 754 3232             +1 212 773 7056              =jfklQgmf_DDH MK!
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Ernst & Young LLP (EY US) Captive Services Team — Innovating Risk Management
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