Trade-related cover
This includes insurances of risks such as import/export embargo, non-payment or non-delivery of pre-paid goods, licence cancellation, unfair calling of on-demand contract bonds.
The location of risk is determined by the insured’s location. These insurances are purchased by companies or other corporate bodies, so the location of risk depends on the country in which the insured’s business establishment most closely associated with the risk is located. The country or countries in which events leading to insured losses could take place are not relevant to the location of risk.
Insurance of assets against political violence
This is insurance of property against perils that may include war on land, terrorism, riots, strikes, civil commotion and malicious damage.
This is property insurance. Guidance on the location of risk can be found under “Property and fire insurance”.
Other asset cover
This includes such insurances as confiscation of fixed or mobile assets, inconvertibility of foreign currency and aircraft repossession.
It is usually reasonable to determine the location of risk in accordance with the insured’s location. These insurances are purchased by companies or other corporate bodies, so the location of risk depends on the country in which the insured’s business establishment most closely associated with the risk is located. The country or countries in which events leading to insured losses could take place are not relevant to the location of risk.
Example (based on UK HM Revenue & Customs guidance)
A UK-based company takes out a political risks insurance contract to cover assets of an overseas subsidiary or business establishment.
The risk will be located in the UK if the contract protects the investment of the UK company in the overseas subsidiary or establishment and compensates it for the loss of capital invested. UK Insurance Premium Tax (IPT) will be due on the whole premium.
The risk will not be located in the UK, and UK IPT will not be due, if the overseas subsidiary is the insured or the insurance is of property against political violence. Premium taxes may then be due in the country where the risk is located.
If the UK company and its overseas subsidiary are both insureds under the contract, the premium should be apportioned between the UK and the overseas jurisdiction – see below.
Global contracts
A global contract is a contract insuring risks located in more than one country.
The following are examples of political risks global insurance contracts:
- A contract taken out by a company, where the location of the insured determines the location of risk and the definition of “insured” includes other corporate bodies or establishments located in other countries. The contract may refer to specific named entities or may state that all subsidiaries, associated companies, branches, or other forms of establishment are covered under the policy.
- A contract covering property against political violence, where the property is located in more than one country.
“Establishments” are discussed in detail here.
Premium apportionment
A global contract may give rise to regulatory and tax exposures in different jurisdictions. Compliance with these requirements requires the overall premium to be apportioned between the countries in which risks are located. Guidance on premium apportionment is provided here.
