Global Insurance Requirements John Barnwell Bruce Eberly Bruce Wineman May 7, 2010

2 Discussion Topics  Overview from a Cargo Perspective –John Barnwell, Allianz Global Corporate & Specialty  Theoretical and Practical Considerations –Bruce Eberly and Bruce Wineman, Aon Global

3 “Globalization is not something we can hold off or turn off…it is the economic equivalent of a force of nature – like wind or water.” Bill Clinton Ah, Globalization

4 Topics to Cover  Growth in Sector  Complex Environment  Implications of Non-Compliance  Possible Solutions

5 Growth in Sector Source: IUMI 2009 Cargo Fact Sheet

6 Growth in Sector Global exposures of clients are changing   Worldwide shift of investments across the globe (growth / emerging markets)   Global M&A activities across trade sectors   Focus on efficient and lean production processes and service capabilities

7 Growth in Sector/Complex Environment “Wide Angle View Seen As Key For Global Programs” (3/29/2010) “Global Strategy Stabilized IBM During Downturn.” (4/20/2010) “Ignoring Local Insurance Regulations Could Scupper Global Expansion” (3/9/2010) “Non Admitted: The Hidden Dangers” “Canada, Not the 51st State: Insuring Canadian Exposures” “Effective Global Risk Programs: The Impossible Dream?” (Session topics)

8 Complex Environment

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10 Complex Environment  Increased regulation  Multinational legal and fiscal environments  Trade restrictions - UN Sanctions - OFAC Trade is global – but regulations are local

11 Complex Environment Admitted Coverage Required? CountryImports/Exports Storage Brazil Russia India China Argentina Mexico Canada Admitted* Non-admitted Admitted* Non-admitted* Admitted Inland Transit Admitted Non-admitted* Admitted Non-admitted* Admitted Admitted * * Dependent on certain conditions & terms of sale

12 Implications of Non-Compliance   Fines and penalties   Unanticipated tax charges   Jail   Reputational risk   Trade disruption   Suspension of insurer‘s license

13 Possible Solutions Centralized Approach  Establish centrally controlled / coordinated Risk Management philosophy  Establish centrally controlled / coordinated Master Program with local admitted cover  Pool local policies via reinsurance  Integrate Captive if required Decentralized Approach  Obtain standalone insurance coverage locally  Buy separate DIC/DIL cover at central level, where allowed  Employ local decision-making

14 Summary  International trade will continue to grow  Trade is global – regulations are local  Complex global regulations require a team approach  Each client is unique and requires customized solutions

15 Discussion Topics  Overview from a Cargo Perspective –John Barnwell, Allianz Global Corporate & Specialty  Theoretical and Practical Considerations –Bruce Eberly and Bruce Wineman, Aon Global

16 Why is this Important Now?  Corporate governance  Increased awareness by regulatory authorities  Tax issues  Program administration  Reputational risk  Contract/Vendor requirements

17 Compliance Concerns Regulatory:  Laws are not objective – particularly for global firms  Solutions may be expensive  Penalties Tax:  Responsibility  Process for payment under global program structures  Materiality Logistical:  Cost  Resources  Administration, including allocations How can companies identify and manage their level of compliance risk?

18 Compliance Spectrum Compliance Spectrum FULL ADHERENCE Wish to provide global coverage, addressing all countries with operations METHODOLOGY Address countries based upon selected criteria – # of employees, size/nature of operation (i.e., non- sales offices), number of Ds&Os, etc. ARBITRARY / “SQUEAKY WHEEL” Address countries which complain loudest MINIMALIST Investigate concept/cost, Do nothing COST

19 Designing your Global Program Designing your Global Program FULL ADHERENCE Wish to provide global coverage, addressing all countries with operations

20 Compliance Framework Compliance Framework Country Non-admitted permitted Compulsory coverage Local placement No Yes Calculate IPT Pay to carrier or fiscal rep. Evaluate: Business importance Corporate objectives/structure Contractual obligations Indemnification provisions/restrictions Availability of cover/limits in local market Regulatory approval process Penalties/consequences Allocation philosophy Tax position Retention levels Local service needs Costs involved and/or other factors Score countriesRed YellowOptionsGreen Second priorityLeave alone Obtain regulatory approval Local policy

21 Multiple Stakeholders  Insurer  Broker  Insured: –Risk Management –Senior Management –Tax –Legal –Finance –Business Development –Purchasing –Field

22 Program Optimization Program factors in requirements governing compulsory, admitted & non-admitted coverage, contractual and tax requirements. A comprehensive communications plan to ensure all parties have necessary information and contacts support both business and risk management objectives. Program design based on review of operations, cross-border business issues and processes. Critical issues such as contractual obligations, interdependencies, contingent exposures, operational needs addressed. Program options include efficiency in design, costs, and administration. Selection of markets based on leverage, coverage, cost and capabilities regardless of underwriting location. AddressExposures Compliance ProgramStructure Market Selection Efficiency & Execution Global Risk Management Program Program structures tailored to minimize coverage overlap while ensuring program response and compliance where available and commercially feasible. Address Corp. Objectives The optimal program incorporates the firms’ risk finance and management objectives into its structure and implementation. Communications

23 Available Tools  AXCO  Lloyd’s Crystal  Advisen  Insurance Services Network: –  AIMU –

24 AXCO – Summary Market Reports

25 Lloyd’s - Crystal

26 Compliance Case Study - Brazil Situation - Brazil:  Global Tech firm with assembly operations in Brazil - Parts imported, assembled & the finished product exported.  Brazilian cargo premium exceeds entire global cargo program premium - Firm needs to reduce costs Possible Solutions: 1.Cover Brazil under Global Cargo Program 2.Set up admitted underlier to Global Cargo Program 3.Pretend to Self-Insure but really cover under Global Program…after all, Import Insurance is no longer compulsory 4.Export Insurance isn’t compulsory so self-insure Result: “We’re screwed…but at least we know why”

27 Summary  Theoretical, but becoming more realistic  Each company will have different risk tolerance  Pragmatic process for identifying and managing Compliance risk  Solutions will continue to develop

28 These presentations are intended for educational purposes only and do not replace independent professional judgment. Statements of fact and opinions expressed are those of the participants individually and, unless expressly stated to the contrary, are not the opinions or positions of Allianz or Aon Global, their respective affiliates, or subsidiaries. Allianz and Aon Global do not endorse or approve, and assume no responsibility for, the content, accuracy or completeness of the information presented. Attendees should note that sessions may be published in various media, including print, audio and video formats without further notice. Disclaimer