In addition to consistent coverage, superior service and execution certainty, taxation and transfer pricing should also be a central component of the design and implementation of a compliant multinational insurance program, according to a white paper released today by the ACE Group of insurance and reinsurance companies and KPMG, LLP, a global professional services company.

The white paper, “Structuring Multinational Insurance Programs: Addressing the Taxation and Transfer Pricing Challenge,” is co-authored by ACE Group’s Suresh Krishnan, General Counsel, Multinational Client Group, and Richard Sica, Executive Vice President, ACE Risk Management. Representing KPMG, LLP, coauthors include Lucia Fedina, Ph.D., Managing Director in its Economic and Valuation Services practice, and Aaron Maguire, Partner in its Insurance Tax practice.

The new white paper explores those factors that risk managers and their financial colleagues should consider - with respect to transfer pricing -- when designing and implementing a multinational insurance program.

The discussion includes a summary of how multinational insurance programs could work, the importance of using an arm’s-length, bargained-for exchange standard for allocating premium and loss recoveries, objectively documenting the negotiations, and having an independent third party assess the risks involved - all major elements for a global transfer pricing program.

The authors’ commentary is part of ACE Progress Reports SM , a collection of white papers, articles, and executive reports on current and emerging risk management issues. This new white paper was produced in conjunction with KPMG, LLP.

“Since many multinational companies consolidate risk management functions in the parent office, the parent frequently takes the lead in negotiating and arranging insurance policies that provide consistent worldwide coverage as well as consistent limits to its worldwide interests. Compliance with local insurance laws is critical, but, without giving consideration to income tax and transfer pricing, may be insufficient to establish a robust and measurably compliant multinational insurance program.” commented Mr. Krishnan of ACE Group. Mr. Sica added, “By entering into appropriate transfer pricing agreements, the purchaser of a master policy may be reasonably assured that the global insurance program will receive the appropriate income tax treatment.”

Ms. Fedina of KPMG stated, “When designing and implementing a multinational insurance program, companies entering into such programs need to, at the outset, understand the income tax consequences. Although insurance regulatory compliance has historically fallen on the shoulders of insurers and insurance brokers, issues related to transfer pricing are largely the concern of the companies purchasing such insurance.” According to Mr. Maguire, “Working with experienced accounting, tax, and financial specialists to design a comprehensive global transfer pricing program can result in a materially compliant international insurance program, and may also ensure that the program ultimately satisfies the collective objectives of the client, insurance brokers, and insurance carrier.”

To access the report, please visit: www.acegroup.com/Media-Center/ACE-Perspectives/ACEPerspectives.html. The material presented in the report is not intended to provide legal or other expert advice. It is presented as information only. Readers should consult legal counsel or other experts, as applicable, with any questions they may have.