International Insurance Managing Foreign Risk Through Insurance Issues & Solutions

Risk in a Global World Great deeds are usually wrought at great risks. Herodotus (484 BC BC) Every good thing in the world stands on the razor- edge of danger. Thornton Wilder ( ) There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction. John F. Kennedy ( )

International Insurance Outline I.Basic concepts of insurance II.International insurance issues III.Approaches to addressing international insurance needs IV.Addendums and topics for further discussion

International Insurance Part I: Basic concepts of insurance

International Insurance Part I - Basic Concepts of Commercial Insurance Risk management strategies involve avoiding, assuming, controlling or transferring risk Insurance is the most common form of risk transfer Two major groupings of insurance are life and non-life Common types of non-life insurance General liability Property & marine (including loss of profits) Automobile Workers compensation

International Insurance Part I - Basic Concepts of Commercial Insurance Insurance in the US is highly regulated (principally by the states) Insurance coverage in the US is largely uniform and consistent between insurers and from state to state Most insurance in the US must be placed with admitted insurers Some insurance in the US is compulsory Automobile Workers compensation

International Insurance Part I - Basic Concepts of Commercial Insurance Insurance has tax implications Premium payments Loss recoverables Insurance in the US typically restricts coverage to losses occurring or adjudicated in the US Tradition Lack of insurer capabilities Lack of insurer knowledge Insurability issues (e.g. flood, earthquake, poor construction) Government regulations (e.g. sanctions)

International Insurance Part II: International Insurance Issues

International Insurance Part II – International Insurance Issues Foreign Travel –Injury or sickness (e.g. workers comp, quality of care, endemic diseases) –Hospital bill payments –Financial responsibility (e.g. auto, presumption of guilt) –Kidnap & ransom –Evacuation and repatriation –Injury or damage to property of others Foreign Sales –Damage to goods in transit –Damage to goods while in storage –Injury caused by defective product

International Insurance Part II – International Insurance Issues Physical locations abroad –Damage to building or contents –Loss of income –Injury or damage to property of others –Expatriates, foreign nationals and third country nationals –Automobiles –Local regulations

International Insurance Part II – International Insurance Issues Common issues –Admitted insurance requirements –Compulsory insurance (always admitted) –Language issues and requirements –Legal system (e.g. Napoleonic code, common law) –Insurer solvency –Services (loss control, consultation, claim handling) –Currency translation –Consistency of coverage and limits –Tax consequences

International Insurance Part III: Approaches to Addressing International Insurance Needs

International Insurance Part III – International Insurance Solutions Non-Admitted –Extend US policies or issue separate non-admitted policy (e.g. foreign package policy a.k.a. “exporters policy”) Admitted –Purchase local foreign policy/policies (independent purchases vs. controlled) Combination –Provide US based DIC and DIL in combination with admitted foreign coverage (e.g. Controlled Master Program or CMP)

International Insurance Part III – International Insurance Solutions Non-Admitted (i.e. “exporters policy”) –Smaller, less complicated accounts –Incidental exposures –Export sales –Temporary foreign travel –Incidental property exposures –Non-owned/hired auto

International Insurance Part III – International Insurance Solutions Key Advantages –Simple –Cheap –No solvency issues –Consistent coverage and limits Key Disadvantages –May not comply with local regulatory requirement –Potential tax pitfalls –Limited services –Local coverage may be better

International Insurance Part III – International Insurance Solutions Admitted –Purchased either independently by local representative or coordinated/controlled through headquarters (CMP) –Compulsory coverage required –More than an incidental presence –Owned or leased foreign locations –Foreign employees –US employees stationed abroad –Risk consultation, loss control or claim services desired

International Insurance Part III – International Insurance Solutions Key Advantages –Ensures compliance with local laws –Avoids language and currency translation issues –Reduces likelihood of adverse tax consequences –Local expertise and services Key Disadvantages –Inconsistent terms and conditions –Coverage may not be as broad as US coverage –Generally higher rates –Insurer solvency governed by different regulations

International Insurance Part III – International Insurance Solutions Combination –Best if coordinated/controlled out of headquarters via a CMP Larger and more complex companies Where sizable property insurance needs exist Where significant compulsory insurance needs exist Where uniform coverage and limits are desired –Achieved through combination of local admitted policies in combination with non-admitted DIC/DIL policies Fills coverage gaps Provides uniform limits

International Insurance Part III – International Insurance Solutions Key Advantages –Properly done, provides coordinated program with relatively uniform coverage and limits –Balance sheet and P&L protection –Cost savings –Better corporate management control –Avoids language and currency translation issues –Reduces likelihood of adverse tax consequences –Local expertise and services Key Disadvantages –Requires high level of underwriting expertise –Limited number of insurance intermediaries or companies with complete capabilities –May be costly to implement

International Insurance Less Complex Non-Admitted Most Complex Local Admitted Insurance Controlled Master Program Incidental Travel Limited Product Exports Incidental Property Values Compulsory Coverage Needs Physical Location Multiple Locations Large Values Significant Risks

International Insurance CONTROLLED MASTER PROGRAM NON-ADMITTED DIC/DIL POLICY(IES) (Centrally Controlled by Headquarters) US Policies Admitted Local Foreign Policies

International Insurance Part IV: Addendum and Topics for Further Discussion

Additional Discussion Topics Liability climate outside the US “Indemnify” versus “pay on behalf of” Travel assistance services Kidnap and ransom insurance Political risk insurance Local customs Travel warnings Countries under sanction Endemic disease Medical evacuation 24-hour exposure Defense base act coverage US territories and possessions Repatriation expense Credit insurance Lloyd’s of London

Typical Travel Assistance Services 24 hour toll free multi-lingual operators Country-specific information (e.g. cultural) Visa & passport requirements US state department travel advisories Emergency message relay services Embassy and consular information Emergency travel arrangements Referrals to attorneys Referrals to physicians and hospitals Medical evacuation/repatriation assistance Prescription replacement or refill assistance Interpreters

Countries Under Travel Warning As of 4/22/11 Mexico Burkina Faso Nigeria Cote d'Ivoire Iraq Bahrain Lebanon Syria Egypt Algeria Mauritania Afghanistan Yemen Mali Eritrea Libya Pakistan Haiti Central African Republic Niger Nepal Sudan Kenya Somalia Saudi Arabia Chad Guinea Democratic Republic of the Congo Colombia Burundi Philippines Iran Democratic People's Republic of Korea Israel, the West Bank and Gaza Uzbekistan Source: 25

Countries Under Economic Sanction As of 4/22/11 Balkans Belarus Burma Cote d’Ivoire Cuba Democratic Republic of the Congo Iran Iraq Liberia Lebanon Libya North Korea Somalia Sudan Syria Zimbabwe Source: 26