Risk location examples

The examples below illustrate how risk location principles are applied to specific classes of business in certain territories.

The Risk Location Guidance will assist in determining which territories regulations must be considered. Market participants may wish to seek specific legal, regulatory or tax advice for more complex cases.

• Aircraft hull

  Aircraft hull

  Factors and features of the risk:

  Aviation risk - Aircraft hull (General aviation)

  • the insured is a South Africa resident.
  • the aircraft is registered in the British Virgin Islands (BVI).
  • the aircraft operates from (i.e. ordinarily based in) the Cayman Islands. 
  • the business is written under a binder placed through a South African resident coverholder.

  As explained in the introduction, aircraft hull a "vehicle" based risk and as such the risk location may be determined by the following factors;

  • the territory in which the aircraft is registered,
  • the territory where the aircraft is physically located, and
  • the territory in which the insured is resident or has its establishment most closely associated with the risk.

  Whether or not a factor is relevant will depend on the particular territories identified.

  In addition the fact that the business has been placed via a South African coverholder may be relevant.

  Analysis

  South Africa:
  
  Under South African insurance law the following risk are located in South Africa in relation:

  (a) Risks in respect of immovable property, including buildings, fixtures and other fixed improvements, located in South Africa; or

  (b) Any other risks where the insured is a natural person resident in South Africa or in any other case, the insured has its registered office or principal office, or principal place of business in South Africa.

  As the insured is a South African resident, this risk has a South African risk location. 

  In addition as the risk has been placed via a South African coverholder the risk will fall within the South African VAT regime and may attract VAT.  (To determine if VAT is applicable the specific rules for that tax need to be examined as these are not necessarily driven by risk location.)

  British Virgin Islands (BVI):
  BVI insurance law states that a risk is located in that territory if a policy insures:

  (a) a person who is resident in the Virgin Islands at the time the insurance contract is effected against any kind of risks, except risks in relation to property; or

  (b) a person against risks of any kind in relation to

  (i) immovable property situated in the Virgin Islands; or

  (ii) personal property which at the time the insurance contract is affected is held or based in the Virgin Islands

  As the insurance is not taken out by a BVI resident and does not relate to an aircraft located / operating out of the BVI there is no risk location in the BVI.  (BVI registration of the aircraft will not create a risk location in the BVI.)

  Cayman Islands:
  Cayman Islands insurance law states that a risk is located in that territory if a policy insures:

  (a) The life, safety, fidelity or insurable interest (other than in respect of property) of a person who, at the time of effecting the contract, is ordinarily resident in the Cayman Islands.

  (b) Property that at the time of effecting the contract is in the Cayman Islands.

  (c) A vehicle, vessel or aircraft or other moveable property that is ordinarily based in the Cayman Islands.

  As the insurance is for an aircraft operating from the Cayman Islands” this risk has a Cayman Islands risk location.

  In this scenario the risk has two locations for tax and regulatory purposes. Please see guidance on multiple risk locations.
  

• Marine hull

  Factors and features of the risk:

  Marine – Ship’s hull

  • The insured is located in the Bahamas.
  • The vessel is registered in Germany.
  • The vessel is ordinarily based in Germany. 
  • Open market business placed through an intermediary in the Bahamas.

  As explained in the introduction, ship’s hull is a “vehicle” based risk and as such the risk location may be determined by the following factors:

  • The territory in which the ship is registered,
  • The territory where the ship is physically located, and
  • The territory in which the insured is resident or has its establishment most closely associated with the risk.

  Whether or not a factor is relevant will be dependent on the particular territories identified.

  Analysis

  Bahamas:
  Under Bahamian insurance law a risk is located in the Bahamas if the policy is issued in respect of “property, lives or other risks” located there.  
  
  Registration does not determine that a ship is a risk located in the Bahamas, neither does the fact that the insured is resident in the Bahamas. In this scenario the risk will not fall within the Bahamian regulatory or tax regime.

  Germany:
  EU insurance law which is applicable in Germany states that “a risk is located in an EU member state if relates to:

  • A building (and its contents if covered under the same policy) situated in that member state.
  • A motor vehicle, ship, yacht or aircraft registered in that member state. 
  • A travel policy for four months or less taken out in that member state.
  • For all other types of insurance it is a risk of that member state if the insured is habitually resident in the member state or for a business or an organisation if the establishment to which the contract relates is situated in that member state."

  As the vessel is registered in Germany the risk is located in Germany and subject to the German regulatory and tax regime.  (The fact that the vessel operates out of Germany is irrelevant to the risk location as this concept is not recognised under EU law). 
  
  

• Marine cargo

  Factors and features of the risk:

  Marine – Marine cargo (goods in transit)

  • The insured is resident in Singapore.
  • The insured’s goods are going to be in transit by sea from Singapore to the Philippines.
  • The business is placed through a Singapore based service company (via the Lloyd’s Asia Scheme).

  
  Analysis
  

  
  Philippines:
  
  Under Philippine insurance law;
  “A risk is deemed to be a Philippine risk where the risk is situated in the Philippines. In the case of marine/satellite insurance, a risk is deemed to be a Philippine risk, where the vessel/satellite is owned/registered by a Philippine company.”

  Risks relating to goods in transit are usually located in the territory in which the insured is resident or has its establisment most closely associated with the risk.

  In this scenario there is no risk location in the Philippines
  
  Singapore:

  Under Singaporean insurance law a risk is located in Singapore if:

  • The risk arises in Singapore; or
  • The insured is a person resident in Singapore; or
  • The insured is a permanent establishment in Singapore.

  As the insured is resident in Singapore the risk has a Singaporean risk location.

  As the business has been arranged via a Singapore based service company, i.e. Lloyd’s Asia, it will fall within the Singapore Goods and Service Tax (GST) regime.  However there is a specific zero rating for policies covering goods in international transit so tax is not chargeable. 

• Products liability

  Factors and features of the risk:

  Liability risk - Products liability

  • The insured is resident in Israel
  • The insured manufactures products in Israel and exports them to Romania.
  • The business has been placed via an Israeli resident broker.

  Analysis:

  Romania:
  
  EU insurance law which applies in Romania states that “a risk is located in an EU member state if relates to:

  • A building (and its contents if covered under the same policy) situated in that member state.
  • A motor vehicle, ship, yacht or aircraft registered in that member state.
  • A travel policy for four months or less taken out in that member state.
  • For all other types of insurance it is a risk of that member state if the insured is habitually resident in the member state or for a business or an organisation if the establishment to which the contract relates is situated in that member state."

  As the risk does not meet any of the criteria above there is no risk location. (The fact that a risk event, i.e. the peril takes place in Romania does not give rise to regulatory or tax obligations).

  Israel: 
  
  Under Israeli insurance law an Israeli risk is defined as  "all business where the insured is domiciled in Israel and the risk is situated in Israel". 
  
  As the insured is an Israeli resident (i.e domiciled in Israel) there is an Israeli risk location. (The fact that the business has been placed via an Israeli resident intermediary has no bearing on the location of risk).