A world of solutions to simplify the coverage challenges of multinational corporations. XL Group Insurance. XL WorldPass

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1 A world of solutions to simplify the coverage challenges of multinational corporations XL Group Insurance XL WorldPass

2 2 A changing world demands a global program structure to keep pace with licensing, tax and legal requirements Since the 1960s the controlled Master Program or Global Program structure has provided multinational corporations with internationally consistent cover through a single, global Master Policy, backed up at the local subsidiary level by policies issued in local languages to market good local standards. That two-tier model served its purpose well. Now, however, that model is under strain from increasing globalisation and regulatory scrutiny driven, in part by the financial crisis, with governments everywhere looking to boost revenues through taxation. In particular, the provision of unlicensed DIC/DIL cover exposes insurers, insureds and their brokers to the risk of regulatory sanction. XL Group has found that in over half of those countries which prohibit the provision of typical non-admitted cover, resulting sanctions are directed at insureds and their brokers. With that in mind, XL Group has retooled typical global program structures from the ground up. We have identified the countries where the status quo works, and, conversely, those where unlicensed insurance should be seen as a no go area. The challenge of covering local exposures Through our network of XL Group offices and fronting partners, we can issue local policies in over 140 countries worldwide for most insurance lines. That represents all of the world s major economies and over 98% of global GDP, but still leaves scores of jurisdictions where uncertainty exists. In which jurisdictions will exposures permissibly be covered? In which countries will insurers and their clients run the risk of regulatory sanctions? The insurance industry s stop-gap solution in the past has been to provide clients subsidiaries in those countries with potentially impermissible non-admitted cover, and to pay claims outside the country where the loss occurred. With countries such as Argentina imposing fines equating to several multiples of claims made under impermissible non-admitted policies, this approach is no longer viable. The XL WorldPass Solution Where locally-admitted cover is unavailable and nonadmitted cover is impermissible, XL Group can offer a type of cover which protects uninsured loss incurred by clients local subsidiary companies at the holding company level. This is achieved by adding our Basis of Cover (BOC) endorsement to the Master Policy, insuring the parent company s financial interest in its uninsured local companies. With the BOC endorsement we are not paying a conventional loss under non-admitted coverage that local law may strictly prohibit. Instead, XL WorldPass provides financial protection to our insureds, helping to protect them from risk and guiding them through the progressively intricate maze of licensing, tax and legal issues.

3 A world of options 3 The insurance arm of XL Group offers our clients three coverage options for their worldwide operations and entities. The client, together with XL Group and the broker, can decide how to structure the coverage for the operations of the local entities. The three options are a locallyadmitted policy; Permissible Unlicensed Cover (PUC); and, finally, Financial Interest (FI) cover. Local Policy Permissible Unlicensed Cover (PUC) Financial Interest (FI) Cover Description provided under provided to Premium allocation Premium payment Premium taxes Continued on next page A locally-admitted policy is issued by a locally-licensed insurance company to the client s local entity, either by an XL Group company, or one of our established Fronting Partners. The policy issued reflects, at a minimum, Good Local Standard coverage, in accordance with local law, regulation and language. Cover for DIC/DIL excess of the local policy is provided via the Master Policy, either on a Permissible Unlicensed or Financial Interest basis. For details see these cover options. Permissible Unlicensed Cover may be available where local law does not restrict insureds from purchasing cover from a foreign, unlicensed insurer. PUC may be provided either ground up (where no local policy is issued) or for DIC/DIL excess of a locally admitted policy. No separate policy will be issued for this option although XL Group may provide a Certificate of cover. Cover is provided to the local entity of the client under, and on the terms of, the Master Policy. Local Policy Master Policy Master Policy Local Insured Local Insured Master Insured Premium is allocated to each local policy commensurate with the exposure and coverage terms applicable to the policy. Local Policy premium applies. The premium is usually paid by the local insured, but where desired by the client, can be paid centrally by the parent company where local law allows. Local premium taxes are handled on the local policy by the local insurer. Premium is allocated to the local jurisdiction commensurate with the exposure and coverage terms applicable to the policy. Premium allocated to PUC is generally included in the Master Policy premium. In certain more restrictive situations, premium may have to be paid by the parent company to the Master Insurer. In most situations, however, premium may be paid by the local insured to the Master Insurer. A local non-admitted tax may be payable on the PUC premium. Generally this will be reportable and payable by the insured. Financial Interest Cover is provided to the Master Insured for its Financial Interest in uninsured losses sustained by its local entity, in circumstances where that entity cannot be, or chooses not to be, insured on a PUC basis or a local policy. FI may be provided either ground up (where no local policy is issued) or for DIC/ DIL excess of a locally admitted policy. There is no coverage provided to the local entity. Instead, the Master Insured receives FI coverage which is valued at a sum equal to what would have been payable to the local entity had the Master Policy terms and conditions been issued to the local entity. Premium is allocated based on the exposure and coverage terms applicable to the policy of the parent with respect to its uninsured local entity. This will generally equate to the premium that would be applied locally if that entity and not its parent were insured. The FI premium is paid by the parent company to the Master Insurer and is included in the Master Policy premium. Client internal allocation of premium to the uninsured entity is not usually allowed for FI premium. Premium allocated to FI under the Master Policy will be subject to any applicable premium taxes and/or surcharges applying to the Master Insured s headquarter jurisdiction. They will be collected and handled by the Master Insurer.

4 4 Local Policy Permissible Unlicensed Cover (PUC) Financial Interest (FI) Cover Claims handling Claims are handled by the local insurer s claims experts subject to claims control by Master Insurer where applicable. Claims are handled by the Master Policy Claim Handler. Local claims adjusters may be involved where necessary and appropriate. In each circumstance where FI claims are received, the Master Policy Claim Handler will be managing the claim process. Facts and legal considerations will determine whether the XL Group claim staff will be responsible for adjusting FI losses or whether handling will be left to the local uninsured subsidiary. Claims payment Paid from local insurer to local insured. Paid from Master Insurer to local insured. Paid from Master Insurer to Master Insured in the Master Policy country. Other European Capability: A single XL EuroPass policy can be issued by XL Group to provide cross- border coverage for all EU/EEA countries, thereby simplifying policy administration. Proof of cover: As the local entity is not insured, no proof of insurance or certificates can be issued to the local entity.

5 How to Get Started 5 Design a compliant global program For each individual country, you will need to determine how the local entity should receive insurance coverage. Country with client entity/ subsidiary? Does client require local policy? Yes Local policy issued by local carrier to local client entity for primary cover DIC/DIL coverage under Master policy? Is Permissible Unlicensed coverage allowed and/ or feasible? Yes Permissible Unlicensed No Ground up coverage under Master policy No Financial Interest Example of an XL WorldPass program structure Example assumes Master Insured with locations in five countries. Master Country Local Country 1 Local Country 2 Local Country 3 Local Country 4 Master Policy Global PUC* (DIC/DIL) FI* (DIC/DIL) PUC*(ground up) FI* (ground up) Local Policy Local Policy * PUC and FI coverage is provided by the Master Policy via the Basis of Cover endorsement

6 6 Submission Details Get started XL Group looks forward to working with our clients and their brokers to design the XL WorldPass solution that best meets their global insurance needs. Please see below for the typical information we require to quote submissions. Information required In general, minimum requirements to quote your submission include: Casualty Environmental Property Overview of insured global operations List of locations seeking coverage specifications (limits and deductibles, including any unique local coverages required) Detailed current and historical information of the company, including broad product areas and geographical operations Five years historical plus current, recently valued, company loss runs by country (the loss history should be analogous to the coverage being sought or differences should be noted by the broker) Contracts, purchase and sale agreements, lease agreements Electronic schedule of values (by location) Location engineering information and surveys Servicing Requirements

7 Contact 7 To learn more please get in touch with our Global Programs Center of Excellence at or visit our website xlgroup.com/insurance to find your local XL Group office and contact.

8 8 The XL WorldPass suite of solutions is designed to address and minimize licensing and tax compliance risk for participating policyholders and producers. We cannot, however, and do not represent that the XL WorldPass product conclusively eliminates all risks or that no further risks exist or will arise in future. We emphasize, that policyholders and producers should obtain their own independent professional advice. Nothing contained within this brochure nor any communications by any XL Group entity should be construed as constituting legal, regulatory or tax advice. This general product description is for information only. It is neither an offer to sell nor a solicitation to purchase any particular insurance product. s may not be avail able in all jurisdictions. Products are subject to legal and underwriting requirements. Specific product availability varies by global jurisdiction. is a trademark of XL Group plc companies. XL Group is the global brand used by XL Group plc s insurance and reinsurance subsidiaries. xlgroup.com