32 Annual Caribbean Insurance Conference Journey to ... · Eastern Caribbean Currency Union (ECCU)...

June 5th, 2012

Presented by:

© 2012 ComplianceAid

32nd Annual Caribbean

Insurance Conference

Journey to Sustainability

The Challenges and Possible

Solutions to Inter-Island

Operations

Michelle N. Martin

CAMS, ACA

� Born in Antigua

� Bachelor & Master at Florida

International University

� Certified Anti-Money Laundering

Specialist

� Association of Certified Anti-Money

Laundering Specialists, South Florida

Chapter, Founding co-chair

� 18 years of experience in Auditing,

Banking , Insurance & Financial

Services


Context

As regulatory bodies are multiplied across

jurisdictions, Insurance Companies are

operating in an ever growing complex

business environment.


Weak regulation and government supervision has led to heightened vulnerabilities of the non-banking financial sector such as Insurance.

The recent global economic turmoil highlighted the need for a more structured regulatory environment.

Insurance regulators around the world are reevaluating current solvency standards, and are seeking to improve efficiency, practices and procedures pertaining to the financial oversight of insurers and reinsurers globally.


Context

Context

As a result, insurance regulators are beginning to come

together in an effort to map out a uniform way to

oversee insurance companies on a multi-jurisdictional

level.

In the Caribbean, there is Regional and International

pressure to fix the problems surrounding the insurance

industry.


There have been rogue insurance

companies in the region whose unethical

practices have tainted the image of the

industry.


Ethics

“The insurance industry is very important to the

economy – as important as the banking sector. An

insurance company operating within the law provides

security to the insuring public. If you damage that you

are not just damaging the company, you are damaging

the economy, which is our greatest concern.”

(Willard Harris, president of ATTIC Trinidad & Tobago)

http://www.trinidadexpress.com/business-magazine/2_000_complaints_against_insurance_firms_in_three_years-150713705.html


Social Responsibilities

Regional Initiatives – Trinidad & Tobago

A new Insurance Act is currently before Parliament.

� Some of the legal obstacles to compliance will be addressed

� More capital will be required to open a general insurance company

� Obligation to carry a full-time actuary

� Certify each year that the level of claims reserves is sufficient, and

the adequacy of claims reserves

� Empower the Central Bank to levy fines


Regional Initiatives –

Eastern Caribbean Currency Union (ECCU)

The challenge in the ECCU is even greater as multiple

jurisdiction must agree on a common framework as the

financial landscape needs to change.

A second Road Map (white paper) for Insurance

Supervision in the ECCU is estimated to be released in

June 2012.

The first version generated controversy.




The most critical items proposed in the first draft roadmap are:

� Harmonize framework or Uniform Insurance Law

� Centralized Regulation

� One regulatory body (single agency) responsible for the oversight o Cost of regulations and supervision would be less

o Improved on-site risk-focused exams/inspection

o More technical expertise

� It is being proposed that the agency would be funded by a two-percent tax on the operations of insurance companies (premium written)




� Insurance Solvency

� Obligation to carry a full-time actuary

� Timely submission of quarterly and annual financial statement

by insurers

� Analysis of financial statements

� Penalties for failure not to file financial statement


Identified challenges of inter-island

operations

ComplianceAid conducted a short survey within the region regarding inter-island challenges. The following have been identified:

� Insurance Deposit Requirements

� Regulatory Requirements (for example: agent and registration fees)

� Reporting Requirement (for example: different forms)

� Transportation Board Differences


Identified challenges of inter-island

operations

� Re-Insurance Treaties

� Tax Regimes

� The Foreign Account Tax Compliance Act (FATCA)

� Anti-Money Laundering (AML)/Counter Terrorism

Financing (CTF)


Insurance Deposit Requirements

There have been a number of insurance companies in

the region that have been operating with inadequate

reserves.

Consequently, an important facet related to solvency

supervision is the mandate to keep adequate

reserves/capital and surplus at all times.



� Insurer must demonstrate that they are solvent (i.e.

its assets exceed their liabilities) on the basis of

timely, audited financial statements.

� Regulatory capital requirements should be established

at a level such that the amount of capital that an

insurer is required to hold should be sufficient to

ensure that, in adversity, an insurer’s obligations to

policyholders will continue to be met as they fall due.



Requiring insurers to maintain adequate and

appropriate capital enhances the safety and soundness

of the insurance sector and the financial system.


Insurance Deposit requirements

Capital Requirement

For example: $2 Million $5 Million

Insurance Fund consisting of assets equal in value

to its liability and contingency reserves.


Regulatory Requirements

� A single insurer operating in the ECCU have to apply

for a license in each of the eight jurisdictions, they

conduct business.

� The application process is evaluated separately by

each jurisdiction.



� The insurer will have eight separate solvency funds.

� Keep up-to-date on the compliance requirements of

eight separate insurance statutes.



Registration and Agent fees differs across the region

Example of fees

� Company Feeso $5,000 – $20,000EC

� Field Agent fees o $500EC

� Agents o $4000EC

Thus, your productivity and efficiency is reduced.


Reporting Requirement

Financial Statements Reports for each jurisdiction

� Quarterly

� Annual – (Audited)

Timely submission of financial statements

Penalties for failure to file financial statements



Anti-Money Laundering and Counter Terrorism Financing not standardize

� Source of Funds (SOF)

� Currency Transaction Report (CTR)

� Terrorist Property Report (TPR)

� Suspicious Activity Report (SAR) o Confidentiality



Impact

� Increase workload for Compliance Officers

� Increase risk in making mistakes when filing

� Penalties – AML/CTFo Failure to file a report timely

o Filing report containing material omission or misstatemento Failure to maintain required recordso Failure to secure identifying information



ONDCP – Antigua & Barbuda



FIU - St. Kitts & Nevis


Reporting Requirement - Barbados

Anti-Money Laundering Authority


Reporting Requirement – St. Lucia

Financial Intelligence Authority (FIA)


Transportation Board Differences

Motor Policies differs

Example:

� Antigua

o One motor policy may have add on at any point in the year

� St. Lucia

o Policy must be issued for at least twelve (12) months

o Can add to the policy only after a year


Re-Insurance Treaties

"In order to capture market share, some companies are prepared to underprice premiums while operating with inadequate claims reserves. Consequently, they have difficulty in meeting consumer claims."

(Central Bank governor Ewart Williams Trinidad & Tobago)

http://www.trinidadexpress.com/business-magazine/2_000_complaints_against_insurance_firms_in_three_years-150713705.html


Re- Insurance Treaties

� There have been number of reinsurers that have

suffered significant losses and become financially

impaired as a result of recent disasters internationally.

� Reinsurers have become much more reliant on

actuarial models and tight review of the companies

they are willing to reinsure.



� Financials are being reviewed more closely

� Examine the experience of the proposed business to

be reinsured

� Review the underwriters that will write that business

� Review their rates

� Reinsurer site visit of insurance company (review

underwriting, claim files)



Even though the point of re-insurance is to reduce an insurer exposure to loss by passing the exposure to loss to a reinsurer or a group of reinsurers it is very important not to put all your eggs in one basket.

The key is to diversify the risk factor:

� Conduct Due Diligence on reinsurer o Interview Process

o Reputable

� Ensure the Company Rating is good

� Good Financial Standing

� Adequate Protection


Tax Regimes

Tax Rates differs in each jurisdiction and it’s not going

to change.

Adequate computerize systems is required to manage

the various tax rates.

Increase workload for Accounting Department.


The Foreign Account Tax Compliance

Act (FATCA)

Foreign Account Tax Compliance Act

(FATCA) is a United States of America law

that is aimed at Foreign Financial

Institutions (FFIs) and other financial

intermediaries to prevent tax evasion by US

citizens and residents through use of

offshore accounts.



Act (FATCA)

� All foreign financial institutions (FFIs) are asked

to enter into an agreement with the United

States Internal Revenue Service (IRS) to report

assets of U.S. citizens and residents holding

accounts in such countries.

� This specifically concerns Insurance Companies

offering Life Insurance companies/products

(annuities/investments)© 2012 ComplianceAid

� Foreign Financial Institution (FFI) if…

� Accepts deposits in the ordinary course of a banking or similar business;

� Holds financial assets for the account of others as a substantial portion of its business,

� Engaged … primarily in the business of investing, reinvesting, or trading in securities…, partnership interests, commodities … , or any interest [therein];

� Insurance company (or the holding company of the an insurance company) that issues or is obligated to make payments to a financial account

� Financial Institutions based on previous jurisprudence includes banks, securities firms, money services businesses, money exchange houses, hedge funds, private equity funds, commodity traders, derivative dealers, among others.


Act (FATCA)



Act (FATCA)

�The Foreign Account Tax Compliance Act (FATCA)

� Passed on March18, 2010 by the U.S. Congress.

� On July 25th, 2011, deadlines and projected scheduled for

implementing FATCA was extended to January 1, 2017.

� The IRS and Treasury Department expect to release final FATCA

regulations during the fall of 2012.


�Refusal of reporting on the part of the U.S. person

� 30 % withholding penalty on “withholdable payments.”

� “Withholdable payments” for the purposes of this Act,

include U.S. Source Fixed, Determinable, Annual, or Periodical

(FDAP) income (e.g. interest, dividends, premiums, cash value

insurance contracts and annuities, etc.) and gross proceeds

from the sale of property which can produce interest or

dividends from U.S. sources.


Act (FATCA)


What is an “U.S. account”?

Account held by a “specified U.S. person” or U.S. owned foreign

entities whose U.S owner has > 10% interest ( e.g.. Depository

accounts, custodial accounts, equity or debt interests)


Act (FATCA)


� Non-Financial Foreign Entities (NFFE):� Privately held operating businesses

� Professional services firms

� Foreign trusts

� Foreign partnerships

� NFFE exempted from 30% withholding� Those exempt from taxation

� Publicly traded companies (or an affiliate of a publicly traded company)

� Certification of no substantial U.S. owners - direct or indirect owner(s) with >10% of the entity; or

� Disclosure of name, address and TIN of each substantial U.S. owner to a withholding agent or the IRS.


Act (FATCA)


� “Notice 2011-53

� Provides a workable timeline for FFIs and U.S. withholding agents to implement the various requirements of FATCA:

� An FFI must enter an agreement with the IRS by June 30, 2013, to ensure that it will be identified as a participating FFI in sufficient time to allow withholding agents to refrain from withholding beginning on January 1, 2014.

� Withholding on U.S. source dividends and interest paid to non-participating FFIs will begin on Jan. 1, 2014, and withholding on all withholdable payments (including on gross proceeds) will be fully phased in on Jan. 1, 2017.


Act (FATCA)


� Due diligence requirements for identifying new and pre-existing U.S.

accounts (including certain high-risk accounts) will begin in 2013.

Reporting requirements will begin in 2014.

� No due diligence is required for individuals accounts below $50,000

and entity account below $250,000.

� For purposes of the Notice, high risk accounts include private banking

accounts with a balance that is equal to or greater than $500,000.


Act (FATCA)


By sharing your customer’s personal information with a third party

your business is exposed to lawsuits.

Is your Insurance Association lobbying your respective governments

to clarify the following:

� Will the jurisdiction promote compliance to FATCA?

� Are there any national legislation requiring updates?

The Foreign Account Tax Compliance Act

(FATCA) - Risk


� Will law revisions include provisions to safeguard Insurance

Company from litigation (i.e. Safe Harbor) as a consequence of

customers’ information disclosure required by FATCA?

� Has an action plan with a timeline to address implementation been

created by the government?

� When will this action plan be shared with stakeholders (Insurance

Companies)?


(FATCA) - Risk


�In the interim, we recommend you do the following:

� Assess your current U.S. Clientele and document results

� Assess your current system as they will probably require update/

changes to manage customer information

� Determine who will be the responsible officer in your company

� Train personnel on FATCA

� Ensure to prepare proper communication about FATCA to U.S.

clients


(FATCA)


Implementation of a risk based AML/CTF program which

comprised of four pillars:

1. Develop Policies and Procedures to prevent your business from

being used to launder money and dealing with cash and monetary

instruments.

2. Designate a Compliance Officer to implement the Anti-Money

Laundering Program.

AML/CTF Challenges


3. Establish an on-going Training Program for all areas subject to

Money Laundering.

4. Establish an Independent Audit function that reviews and tests

activities into specific accounts.

Find the balance between

Compliance Costs and Company Profits

AML/CTF Challenges



Questions ????


Michelle N Martin, CAMS, ACA

Partner

Website http://thelist.pro

E-mail [email protected]

Telephone:

St. John's Antigua, W.I. + (268) 720-6319

+1 (268) 784-9423

Miami, Florida, U.S.A. +1 (305) 772-9712

Michelle N Martin, CAMS, ACA

CEO, President

Website http://complianceaid.proE-mail [email protected]

Telephone:

St. John's Antigua, W.I. +1 (268) 720-6319

+1 (268) 784-9423

Miami, Florida, U.S.A. +1 (305) 772-9712

Anti-Money Laundering & Counter Terrorism Financing Training, Resource and Risk Advisory Services for Financial

Institutions

Affordable Consolidated List of Terrorists, International Sanctions (OFAC SDN, UK, EU, UN, OSFI) and Politically

Exposed Persons (PEP) Screening Database


Thank You

32 Annual Caribbean Insurance Conference Journey to ... · Eastern Caribbean Currency Union (ECCU)...

Documents

Transcript of 32 Annual Caribbean Insurance Conference Journey to ... · Eastern Caribbean Currency Union (ECCU)...