The Changing Environment of International Insurance

1. The Changing Environment of International Insurance

3. Ocean Marine Companion War Risks Policy is available Open Cargo Policy vs. SMP

4. Exporters Package Policy Tailored to firms in early stages of internationalization - incidental exposures Modest limits/premiums ($2,500-$100,000) Insurers vary in coverage offered Application based, fast, no hassle quotations

5. Exporters� Package Coverage General Liability Automobile Liability Voluntary Worker�s Comp/EL Property Business Income Boiler & Machinery Marine Cargo Crime & EE Dishonesty

6. Exporters Package Policy Broad multi-line non-admitted package Worldwide territory/jurisdiction GL/Products driven Foreign Voluntary Comp with Travelers Assistance Services Contingent Auto Liability Incidental Property

7. Exporter Package Optional Coverages AD&D Emergency Medical Political Risk Kidnap & Ransom Credit Risk Optional Services Travelers Aid, Assistance

8. Exporters� Package - Liability Primary driver of coverage CGL including Products, Personal Injury and Advertising, CCC Auto liability XS of admitted compulsory cover - local statutory underlyers FVWC including EL, Repatriation Expenses

9. Exporter�s Package - Property Property - All risks including in-transit, newly acquired, debris, EDP, pollution clean-up, RC, BI following property loss, CBI, EE, Civil Authority Boiler and Machinery Crime - Employee Dishonesty, forgery on/off premises

10. Exporter�s Package - Marine Marine Cargo - All risk including Incidental Storage Usually low limits per shipment and less than $1M in values per annum

11. Worldwide Property & Casualty Programs Controlled Programs vs. Uncontrolled Programs Multinational vs. Global Programs

12. Handling International Exposures Independent Insurance Buying Non-Admitted Coverage Uncontrolled Master Program Controlled Master Program

13. Alternative MN Program Designs Fully Non-Admitted Written outside the country of exposure occasionally endorsed to domestic policy Fully Admitted Written in the country of exposure by a licensed insurer

14. Alternative MN Program Designs Admitted with Non Admitted DIC/XS Controlled Master Program Excess/Difference in Conditions policy written in the US Centrally negotiated WW conditions with admitted underlyers arranged as agreed Program can be �Globalized� by including the USA.

15. Master Program More complex risks Primarily property exposure driven Underwriter global network expertise to the forefront USA Excess/DIC Master Policy to fill in gaps, shortages of local underlyers

16. Control Master Program(Global HQ Directs Entire Program) Two tiered program: Non-admitted Master policy defines scope of protection, conditions and cost Admitted underlyers are issued to localize coverage, transact premiums and losses Usually part of comprehensive RM program Advantages: Uniformly comprehensive program; tax benefits Disadvantages: Costly to implement/maintain requires strong organizational/analytical skills

17. Application of CMP Master Coverage DIC/DIL over admitted underlyers Primary where no underlyers exist Excess over underlying limits �Absolute Excess� applies when underlying loss limits are exhausted (e.g XS over local $100,000 sublimit on water damage) �Relative Excess� contributes with underlying insurance on each loss (e.g. Replacement Cost over local ACV valuation) �Coinsurance Deficiency� covers penalty for limits below those required by local C/I clause.

18. International Policy Similarities Worldwide territory and suits under GL, AL, EL FVWC provides coverage for the insured�s employees working and traveling overseas; traveler assistance Comprehensive property coverage

19. International Policy Differences Exporter smaller, less complicated accounts incidental exposures export sales occasional overseas travel limited property exposures Master DIC larger operations real property exposures local, foreign underlyers USA Excess/DIC policy

20. What about worldwide territory/jurisdiction? Check master policy wording- �sanctioned and embargoed country� language: Cuba Iran Iraq Libya North Korea Sudan

21. International Coverage Challenges and Solutions Common Components Challenges International policies differ in form and construction DIC / DIL language varies by company

22. International Common Coverage Component What to look for: Common Conditions section should include a broad territory that is: compatible with domestic policy territorial limitations and does not specifically name countries; and is used for all lines of insurance written within the program

23. International Common Coverage Component What to look for: DIC language should be �All Risk� DIL language should include �drop down� provisions Should also contain a tax equalization benefit

24. Advantages of Non-Admitted Insurance Absence of currency and language problems Familiar terms and conditions Flexible rates Ease of payment

25. Advantages of Non-Admitted Insurance Familiar solvency standards Coverage continuity and consistency between international and domestic coverage Centralized control of the insurance program

26. Disadvantages of Non-Admitted Insurance Local service can be difficult or non-existent Legal services may need insured involvement Premium cannot be used as a local country tax deduction

27. Disadvantages of Non-Admitted Insurance Local authorities may or may not fine for not using local paper. Paid losses may be subject to income tax Foreign managers may feel left out Cannot take advantage of broader local coverage

28. Advantages of Admitted Insurance Complies with local laws Recognized by the local courts Avoids penalties Premiums are tax deductible in local market

29. Advantages of Admitted Insurance Provides local loss control / claims services Local management understands local language policy Loss settlements can be taken in the country of loss

30. Disadvantages of Admitted Insurance Unfamiliar terms and conditions to U.S. insured Generally higher rates, local experience rated Insurer solvency governed by different regulations

31. Disadvantages of Admitted Insurance Conditions / Warranties may apply Broad form / package policy wording may not be available Premium may be required for coverage to be effective

32. Advantages of anUncontrolled Master ProgramAdmitted with Non-Admitted DIC/XS(HQ arranges DIC/XS over Locally Arranged Policies) Combines the advantages of the Admitted plus the �peace-of-mind� of the DIC/XS up to a level of protection considered adequate by HQ. English, subject to US law. Eliminates translation risk Total program is brought up to U.S. style specifications

33. Disadvantages of anUncontrolled Master Program May have coverage duplication and unnecessary expenses Difficult to find underwriters prepared to write DIC/XS only without the underlying covers. Costly - Underwriters may consider the DIC/XS only as adverse selection Coordination between claims, loss control and audit may be difficult

34. Advantages of aControlled Master Program Combines the advantages of the Admitted and Non-Admitted programs Uniformly comprehensive program; tax benefits May provide payment of premium and claims in either U.S. dollars or local currency

35. Advantages of aControlled Master Program Eliminates potential coverage gaps and overlaps Coordinated and controlled claims, loss control and audit services Provides �sleep� insurance to U.S. insured

36. Disadvantages of aControlled Master Program Limited number of markets with capability, network and expertise Work intensive difficult to coordinate requires substantial time to assemble costly to implement & maintain Can be highly complex requires strong organizational/analytical skills

37. To Be Effective CMP�s Require Risk Manager central control over global risk management strong commitment to a CMP structure willing to work with one insurer and one broker Broker centralized control over worldwide network capability to handle CMP�s Insurer central control worldwide facilities/global service capabilities

38. Why Do Multi-National�s Prefer CMPs? Balance Sheet and P&L Protection Consistency of Coverage Worldwide Cost Savings Better Corporate Management Control

39. Line of Business Specifics

40. International Property Challenges May be differences from what is found in the U.S. Protection systems, building codes and enforcement Buildings tend to be older Access may be an issue Multiple occupancies are common

41. International Property Challenges Many countries require local placement Local admitted coverage may not be up to U.S. standards All Risk vs. Named Perils Warranties may exist Coinsurance definitions vary

42. International Property Challenges Theft, burglary and forcible entry Valuation - ACV, Agreed Amount, Replacement Cost Foreign Tax Liability issues

43. International Property Challenges Coverage Extensions Electronic Data Processing Valuable Papers Accounts Receivable, etc. Definitions of Proximate Cause Locally Driven Hazards - Flood, Earthquake, etc.

44. International Property Challenges - Business Income Different types of Business Income Gross Profits Business Income Contingent Business Income Business Income outside the U.S. is often written on a Gross Profits basis Compatibility with U.S. type coverage Trigger, Time Period/Duration - Indemnity Period? Calculation

45. Foreign Fire Policies May exclude: fire following earthquake, windstorm, riot self fermentation, spontaneous combustion burning �by order of any public authority� subterranean fire; burning of pampas & prairie If dispute, burden of proof on insured

46. Foreign Fire Policies May contain 100% average (coinsurance) May contain severe warranties & limitations In foreign language subject to foreign laws

47. Foreign Income Forms Covers until the business is restored (loss of market) Subject to selected Indemnity Period (IP) normally 6 months to 2 years Subject to 100% Average limits for IP<1 year = 12 month�s profits limits for IP>1 year = projected profits for IP.

48. Foreign Income Forms Warrants existence of direct damage policy Optional clauses: Customers & Suppliers; Additional Cost of Working; Escalators; Limited Wages, etc.

49. International Property Considerations of global activity: Exporter type: Sales rep samples Goods on exhibition Master/DIC: Fixed plant and equipment Standard COPE info Boiler & Machinery

50. International Property Catastrophe Management Earthquake Windstorm Flood Examples of CAT countries Japan Mexico Puerto Rico

51. International Property What do you look for in your International Property Form? Master policy DIC/DIL should address: Real and Personal Property Loss of Income Gross Profits or U.S. Business Income at the time of loss

52. International Property What do you look for in your International Property Form? Master policy DIC/DIL should address: U.S. style extensions such as: Boiler and Machinery - Equipment Breakdown EDP equipment Valuable Papers, Accounts Receivable, etc. Broad Definition of Covered Cause of Loss

53. International Property What do you look for in your International Property Form? Master policy DIC/DIL should address: Replacement Cost Provisions should allow for: Replacement anywhere in the world Time Allowance for the replacement decision Currency Devaluation Coinsurance Deficiency

54. International Property What do you look for in your International Property Form? Master policy DIC/DIL should address: Building Ordinance Coverage if appropriate Interdependent and Contingent Business Income Foreign Tax Liability clauses Currency Conversion in the Loss Payment Provisions

55. International General Liability Challenges Local law, custom and history influence how liability is addressed Different legal systems to consider: Napoleonic Code Asian Custom Common Law Combinations

56. International General Liability Challenges Lesser tendency to sue for damages Contingency fees are not common Loser pays winners legal and related costs Punitive and Exemplary damages are rare Loss of life & injury carry different values than in U.S.

57. International General Liability Challenges The U.S. is exporting its legal system Law firms are establishing foreign operations Product Liability directives are changing the landscape in the European Union and Japan Cost of property damage claims can be equal or greater than in the U.S.

58. International General Liability Challenges Locally placed coverage may not be up to U.S. standards Limits are generally lower than in the U.S. Terms and conditions may vary significantly by country Territorial restrictions may apply

59. International General Liability Challenges U.S. General Liability may not respond outside the U.S. and its territories Potential erosion of domestic U.S. limits from foreign occurrences

60. International General Liability Considerations of global activity: Premises/Operations Products/Completed Operations Personal and Advertising Injury Property Damage

61. International General Liability What do you look for in your General Liability Coverage Form? Master Policy DIC/DIL should address: Payment on behalf, not indemnification Worldwide ex U.S. Premises and Products Worldwide ex U.S. Personal and Advertising Injury Medical Payments

62. International General Liability Master Policy DIC/DIL should address: Broad definition of who is an insured - should include: Vendors Entities or individuals required by contract Newly acquired/Newly formed organizations Fellow Employees

63. International General Liability Master Policy DIC/DIL should address: Duties in a Non-Admitted jurisdictional language Worldwide coverage, including the U.S., for suits and claims resulting from foreign occurrences Currency Conversion - Loss Payment Provisions

64. International Automobile Challenges Compulsory Admitted Coverage in most countries Locally placed coverage may not be up to U.S. standards Limits are generally lower than in the U.S. Terms and conditions may vary significantly by country Territorial restrictions may apply

65. International Automobile Challenges May be a frequency driven exposure Traveling employees renting a vehicle - may only be able to get low limits in other countries Suits may be brought in the country where the accident occurs, or in the U.S.

66. International Automobile Liability Considerations: Hired/non owned No physical damage Contingent Auto Liability Warrant local coverage/limits Local appetite for auto

67. International Automobile What do you look for in your International Automobile Coverage Form? Master Policy, DIC/DIL should address: Payment on behalf, not indemnification Broad coverage territory Medical payments Coverage for suits by Fellow Employees

68. International Automobile What do you look for in your International Automobile Coverage Form? Master Policy, DIC/DIL should address: Duties in a Non-Admitted Jurisdiction language - defense and settlement options Worldwide coverage, including the U.S., for suits and claims resulting from foreign occurrences Currency conversion in the Loss Payment provisions

69. International Crime Challenges Crime coverage is not as common as in the U.S. Lack of or inadequate local coverage may leave the insured exposed to an uninsured loss

70. International Crime Challenges Local customs may dictate how coverage is handled Employee Dishonesty coverage may be particularly sensitive in certain areas of the world Some local Crime covers include bodily injury as a result of being robbed

71. International Crime What do you look for in your International Crime Form? Master policy language should address: Combination of primary coverage and DIC/DIL Extension of Coverage territory to include the U.S. Currency conversion in the Loss Payment provisions

72. International Crime What do you look for in your International Crime Form? Master policy language should address: Include U.S. style coverages such as: Employee Dishonesty Theft Inside and Outside Premises Forgery and Alteration Theft by computer Property damage resulting from theft or attempted theft

73. International Workers Comp/Employers Liability Challenges Many countries have government sponsored work comp and/or health care systems Designed for residents/citizens of their country Typically written by the government or a government controlled agency

74. International Workers Comp/Employers Liability Challenges Frequently part of the National Social Security System System may not extend to travel outside their country Typically does not cover non-citizens/non-residents traveling in their country

75. International Workers Comp/Employers Liability Challenges U.S. Workers Comp coverage may not respond Employee may be forced to pay Benefit level may be subject to dispute Coverage for Personal side trips likely not covered Unclear coverage status of a Third Country National traveling outside their country of assignment Overseas settlements can be very costly

76. International Workers Comp/Employers Liability Challenges Employers Liability Insurance is generally compulsory admitted May be loss frequency driven

77. Foreign Voluntary Workers Compensation Considerations of global activity: Medical evacuation Endemic disease Repatriation 24-hour exposure

78. Foreign Voluntary Workers Compensation Who is covered? US Nationals Third Country Nationals Local Nationals What coverages are provided? State of Hire Country of Origin Local Statutory/Employers Liability

79. Foreign Voluntary Workers Compensation Extraterritorial wording �Temporary Travel� Advantages of FVWC coverage: responds when stateside benefits stop 24 hour coverage Endemic disease Excess repatriation

80. International Workers Comp/Employers Liability What do you look for in your International Foreign Voluntary Work Comp Form? Master policy language should address: Coverage designed to fill the gaps around domestic W.C. Repatriation should include interim stopover Coverage language should be easy to trigger Bodily injury should include endemic disease

81. International Workers Comp/Employers Liability What do you look for in your International Foreign Voluntary Work Comp Form? Master policy language should address: Coverage territory should include foreign employees traveling to the U.S. Coverage should include personal travel when the reason for traveling is primarily business Payment of claims in the U.S. or in the injured employees country of assignment, origin or residency

82. Optional International Coverage Specifics

83. Political Risk Insurance Currency Inconvertibility - inability to convert profits, debt service Expropriation - nationalization, confiscation, appropriation by host country Political violence - war, revolution, civil war and political violence

84. International Political Risk Form Two basic types of Political Risk Exposures 1) Confiscation, expropriation and nationalization of real or personal property by a government or force Confiscation - Government seizure of private property without compensation to the owner Expropriation - Taking property as in eminent domain Nationalization - Government takes over a privately owned business

85. International Political Risk Form Two basic types of Political Risk Exposures 2) Credit Insurance - Protection from risk associated with extension of credit to overseas clients and/or customers Reimbursement of bad debts Protection for past due accounts

86. International Political RiskForm Typically written by specialty carriers or government agencies such as: Overseas Private Investment Corp. (OPIC) Multilateral Investment Guarantee Agency (MIGA) Lloyd�s of London AIG Global Trade & Political Risk Ins. Citicorp Int�l Trade Indemnity Co. UNISTRAT Assurances S.A. People�s Insurance Co. of Singapore

87. Political Risk Markets OPIC - Overseas Private Investors Corporation Writes Expropriation, Confiscation and Nationalization coverage for U.S. firms overseas where U.S. government has a treaty with foreign government One major trading partner not covered by treaty is Mexico Selected LDC�s (excl. China, Mexico, etc.) Up to 20 year history $200 million capacity Tight underwriting process 

88. International Kidnap & Ransom What do you look for in your International Kidnap and Ransom Form? Master policy language should address: Miscellaneous expenses such as the cost of getting money to the ransom site should be included Coverage for negligence and incompetence in hostage retrieval should be included Some aspect of Death and Dismemberment should be provided

89. International Kidnap & Ransom What do you look for in your Inter - national Kidnap and Ransom Form? - Master policy language should address: Does the form include viable professional kidnap hostage negotiation and retrieval services? Named insured should also include family members Coverage should include Kidnap, Ransom and Extortion

90. International Kidnap & Ransom Challenges K & R is a growing issue for U.S. business people traveling outside the U.S. Destinations are changing. More U.S. nationals are visiting locations once considered too remote U.S. citizens are considered targets in certain localities such as the Middle East and Latin America

91. Socio/Economic and Insurance Trends by Region Asia For the most part, Asia is comprised of free, capitalistic societies. The custom generally is for people to deal fairly with one another. The expectation is that you are compensated for your actual damages sustained. Claims are usually settled quickly. (No significant loss development - long tail)

92. Socio/Economic Trends - Asia Lawsuits rarely occur. If legal action is taken, awards are typically determined by a judge. Legal climates are generally favorable. Court awards are many times smaller than what you would expect to see in the U.S. The climate is changing. Japan has passed a Products Liability directive. We are exporting attorneys.

93. Socio/Economic - Asia Insurance Requirements vary by country. Adequate COPE info may be hard to come by, standards are different. Multiple occupancy buildings are common. Tariffs do exist. (Japan & Taiwan) Premiums must be collected prior to binding in Japan & South Korea. Be patient. It takes time to develop info.

94. Socio/Economic - Europe Even with the advent of the EU, member countries are still very nationalistic. English want to do business with local English insurance carrier, etc. Dramatic changes within the last 5 years, including a Products Liability Directive. Directive introduced Strict Liability into EU countries for damages caused by a product. Infrastructure in many parts of Europe is aging, i.e. buildings, protection systems, water supplies.

95. Socio/Economic - Europe Even with the advent of the EU, member countries are still very nationalistic. English want to do business with local English insurance carrier, etc. Dramatic changes within the last 5 years, including a Products Liability Directive. Directive introduced Strict Liability into EU countries for damages caused by a product. Infrastructure in many parts of Europe is aging, i.e. buildings, protection systems, water supplies.

96. Socio Economic - Europe Older town and city layouts may cause difficulties for effective fire fighting. COPE info requirement well understood. Though typically still decided by a judge, claims awards are on the increase.

97. Socio Economic - Europe Napoleonic code is a consideration. Based on this standard, certain exposures are covered by property contracts on a no-fault basis instead of a legal liability basis. (Tenants and Neighbors - Not Fire Legal Liability) Most countries are non-tariff for the majority of lines of business. EU still sorting its finance and insurance rules Insurance market is mature and competitive.

98. Socio Economic � Latin America Cultural and Legal trends are still developing. Wide ranging standards of living results generally low level liability awards. Undeveloped and unsophisticated infrastructures. Building codes may be non-existent or not followed.

99. Socio Economic � Latin America Insurance Regulations vary greatly throughout the region. Some tariffs exist that may or may not be enforced. Insurance market is still embryonic and largely untapped. Economic systems are fragile and subject to rapid inflation or devaluation.