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Risk Location Guidance

What is risk location?

Risk location(s) determine the territory or territories whose laws, regulations and tax rules apply to an insurance contract. The Risk Locator Tool (RLT) was built for Lloyd's market participants and houses thousands of risk location rules and triggers with the aim to assist in determining risk location(s). The general principles set out in the RLT and guidance provided on this page should be used in conjunction with country specific information on Crystal.

Failure to identify the correct territories for regulatory and tax purposes may lead to:

  • delays in premium processing
  • invalid insurance contracts
  • inaccurate regulatory reporting and funding
  • incorrect tax returns and tax payments
  • insured’s, intermediaries or underwriters subjected to fines
  • damage to Lloyd’s international reputation


All parties in the placement chain should comply with regulatory and tax obligations

No. It is possible for the territories of regulation and tax for a single contract to be different because they derive from different rules.

For instance, in the EEA the regulatory risk location for moveable property is the territory where the insured is resident but the tax risk location is where the moveable property is normally situated.

If a Canadian resident insures property outside Canada, this creates a risk location in Canada for regulatory purposes but not for tax.

Please see the country guidance on Crystal for specific risk location rules.

Yes. There are several reasons why more than one territory’s laws, regulations and tax rules may apply to a contract, including:

  • contradictory and overlapping regulatory and tax rules
  • multiple risks insured
  • multiple insureds 
  • involvement of intermediaries


If the regulatory rules of more than one territory apply with contradictory effect, a common sense approach is necessary and the underwriter should ensure arrangements provide appropriate protection to the insured.

If the contract is subject to more than one’s tax regime then taxes should be paid in accordance with each territory’s rules.

It is necessary to allocate premium in relation to global contracts where multiple risks are located in more than one territory.

Please use the Risk locator tool to identify the country(s) of risk before allocating premiums. Allocating premium ensures that business is correctly reported to regulatory authorities and taxes and other fiscal charges are paid correctly.

It is important that the apportionment methodology used to allocate premium is evidenced inthe documentation as regulators and tax authorities may request to see and potentially question the method used.


Methods of premium apportionment

There are no specific rules covering premium apportionment. The method used for any particular contract should be justifiable and documented.

Common apportionment methodologies used to allocate premium include:

  • Staff number employed at different locations for insurances linked to employees, such as directors and officer’s liability, employers’ liability or corporate accident and health risks.
  • The value of property at different locations for property or stock throughput risks. 
  • Turnover in relation to product liability risks.
  • Number of journeys or value of goods for goods in transit risks.
  • The number of or value of vehicles for commercial fleet risks.
  • The number of flight movements / landing and takeoffs or value of hull for commercial aircraft risks.


Underwriters should adopt a common sense approach to premium allocation and apportionment.  Determining premium is in principle a commercial judgment. Consequently if an underwriter decides not to take into account a minor exposure in a particular country, as to do so would not be economic, it is reasonable that no premium is allocated to that country. However the underwriter must be in a position to justify why they have not charged a premium for a particular risk.

The Risk Location Guidance should be used in conjunction with the territory specific risk location information on Crystal.


Crystal search:

Step 1 - select the relevant territory
Step 2 - select ‘Pre-placement considerations’ category
Step 3 - select ‘Definition of risk location’ sub category
Step 4 - click on ‘Create a tailored search’ to view the information

Establishing risk location

To identify the territories for regulation and tax it is necessary to consider the following questions:

If the contract is reinsurance then the risk location is determined by the location of the reinsured(s) and not the location of the original insured(s).

If the contract is insurance you need to consider the questions below.

In broad terms a risk may fall into one of three categories; property, vehicle or other. The category determines what criteria to use to establish risk location.


Property

Insured property can be either immovable (such as buildings, oil rigs, pipelines, bridges or other structures fixed to land) or moveable.

  • Fixed property

    The risk location for immovable property is usually the territory in which the property is situated.


  • Moveable property

    In most territories, the risk location for moveable property is where the property is normally situated. However, for regulatory purposes, EEA member states view the risk location as the territory in which the insured is resident or its business establishment is located.


  • More than one territory for regulation and tax

    If the contract insures fixed property at more than one location, and those locations are situated in more than one territory, there are multiple risk locations.

  • It is also possible for the territories of regulation and tax to be different. For instance, in the EEA the regulatory risk location for moveable property is the territory where the insured is resident or has its business establishment, but the tax risk location is where the moveable property is normally situated.
  • In some territories, e.g. Canada and the US, the location of the insured’s residence or business establishment creates a risk location irrespective of the physical location of the insured property. Consequently, if the insured property is in a different territory from the insured’s residence or business establishment, there are two territories for regulation and tax.  

Please see the country guidance on Crystal for specific risk location rules .


Vehicles

 “Vehicles” include aircraft, ships and other vessels and motor vehicles. The risk location for vehicles may be determined by one or more of the following criteria:

  • Physical location of the vehicle
  • Jurisdiction in which the vehicle is registered
  • Location of the residence or establishment of the insured

Please see the country guidance on Crystal for specific risk location rules.


More than one territory of regulation and tax

As one territory’s risk location rules might contradict or overlap with another’s, there may be multiple risk locations.


Other

The ‘Other’ risk category covers risks which are not property or vehicle-related, e.g. general liability and financial loss.

The risk location is the territory in which the insured is resident or its business establishment is located.

The territory in which an insured peril or event can occur to trigger a claim under the contract does not, by itself, usually create a risk location.


More than one territory of regulation and tax

The contract may have more than one territory of regulation and tax if:

a) The rules of different territories conflict or overlap;

b) The contract is taken out by more than one individual insured, and the individual insureds have residences in more than one territory;

c) The contract is taken out by a corporate entity and it covers the entity’s business establishments in more than one territory. This includes contract taken out by the head office of a group, covering the group’s subsidiaries in different territories.

Please see the country guidance on Crystal for specific risk location rules.

The insured is the party entering into the insurance contract with the insurer(s).

An insured may be a natural person or a corporate entity. The location of the insured may create a risk location.


Natural person(s)

The location of a natural person is the territory in which they live. Legally, this is described as the territory of their “habitual residence” – see Article 13(13)(d) of the EU Solvency II Directive.

The insured’s habitual residence can usually be taken to be the insured’s address shown on the slip or Market Reform Contract (MRC).

“Habitual” residence relates to the insured’s overall situation at the time they take the contract out. A person who has lived for several years in country A and takes out an insurance policy just before moving to country B is “habitually resident” in country A. Generally, if a person lives in a country for over a year they are deemed to be “habitually resident” there.


Corporate entity

The location of a corporate entity is the territory in which it is established.

The insured’s establishment is often the insured’s address shown on the slip or Market Reform Contract. However, policies taken out by corporate entities can be more complex than those taken out by individuals. For example, the “Insured” shown on the MRC could include subsidiary companies as well as the parent company. Each subsidiary company independently creates a risk location, in addition to the risk location of the parent company. This is the case even if a parent company arranges the insurance and pays the premium on behalf of its subsidiaries.

For example, the MRC may define the insured in terms such as:

“XXX Corporation Inc. and any subsidiary of XXX Corporation”

This means that XXX Corporation and all its subsidiaries wherever established are insureds under the contract. Depending on the nature of the risk insured and the territories involved, the address of XXX Corporation and of each of its subsidiaries may create separate risk locations.         

In addition, “establishment” includes other permanent presences of a corporate entity, not amounting to a separate subsidiary – see the list below. If a corporate entity has insured more than one establishment and these are in different territories, there will be multiple risk locations.

Examples of establishments include:

  • branches of companies
  • representative offices
  • offices managed by the businesses’ own staff or by independent persons who have the authority to act for the business as an agency would
  • tied selling agents (independent persons who have the authority to act for the business)
  • factories and workshops
  • mines and quarries
  • oil and gas wells
  • drilling platforms that are fixed to the sea bed

An establishment must have some degree of permanence. For example, a construction site would only be considered an establishment if it lasted for more than one year.

A policy that covers a risk located in more than one territory is a global contract.

Strictly speaking, the location of intermediaries does not affect the risk location, so is not referred to throughout this guidance. However, in some territories the location of an intermediary involved in placing an insurance contract can create regulatory or tax responsibilities and so the location of intermediaries should be taken into account.

Please see the country guidance on Crystal for specific risk location rules.

Further information

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