Aon Insurance Managers Guernsey Newsletter

February 2012

Table of Contents

2 UK CFC Reform & Potential Impact On Captives

3 Zero 10 in Guernsey – the current position for captives

4 Aon Insurance Managers Board of Directors

6 Aon To Move Corporate Headquarters to London

Legal & Regulatory Risk for Non-Executive Directors

Nominated Charity

7 AonLine for Captives

Introduction to Captives Seminar

Aon Captive & Insurance Master Class 2011

Welcome to our first newsletter. We hope that you find this and future issues to be informative and interesting.

Our aim is to update you on developments taking place in Guernsey or elsewhere that could impact captives and insurance companies. In this issue you will note some recent developments in UK Controlled Foreign Company legislation which may represent positive news for Guernsey based captive vehicles.

We also want to raise topics of interest within Aon generally and with some recent changes in the Aon Guernsey Senior Management team we have included profiles of each of our Executive Directors in this edition. I am pleased to welcome both Stuart Brown and John Rowson to the Board from 1 January 2012. Stuart joins us from our Gibraltar office and John from Aon’s Head Office in Chicago. On the subject of Aon’s Head Office there will be a relocation of our headquarters from Chicago to London which is an exciting development that we report on futher in this newsletter.

Finally, we reflect back on our inaugural Master Class held at the CII’s flagship headquarters, Aldermanbury, London in April 2011 and look ahead to the next Master Class which will be held at the Chartered Accountant’s Hall in Mooregate, London on the afternoon of 3 May 2012. We are currently finalising our panel of speakers and will be providing more details of the seminar to you in due course. I look forward to seeing as many of you there as possible.

Best regards.

Paul Sykes Managing Director Aon Insurance Managers (Guernsey) Limited paul.sykes@aon.co.gg

A message from our Managing Director

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UK CFC Reform & Potential Impact On CaptivesIn November 2010, the UK Government proposed reforms to the Controlled Foreign Companies (CFC) rules as part of the Corporate Tax Road Map. The Government made a first step towards reforming the rules by introducing interim improvements in Finance Act 2011. In June 2011 the Government published a consultation document setting out detailed proposals for new CFC rules to be introduced in Finance Bill 2012.

Legislation will be introduced to repeal the current legislation and replace it with a new CFC regime, the key elements of which are:

• The business profits of a foreign subsidiary will be outside the scope of the new CFC regime provided that they meet the specified conditions set out in a “gateway”. These conditions define what is to be treated for the purposes of the regime as profits artificially diverted from the UK.

• “Safe harbours” will also be provided covering general commercial business, incidental finance income and some sector specific rules. A foreign subsidiary can rely on these safe harbours to show that some or all of its profits are outside the regime’s scope.

• As an alternative to the gateway, the regime will also provide exemptions for CFCs. The exemptions will apply to the CFC as a whole and include an excluded territory exemption, a low profits exemption and a lower level of tax test.

The rule changes proposed in 6th December’s draft legislation are generally viewed as a positive step and helpful in promoting the UK as a place that encourages international business.

Potential Impact On CaptivesWhilst the legislation is not specifically aimed at captives, it will impact captives and their owners and captives are specifically mentioned within the text.

Essentially, the expected operation of the legislation means that companies (or exempt foreign branches) outside the UK will only have their profits, or a proportion of profits, assessed in the UK if those profits are artificially diverted from the UK. It appears that the most significant impacts for captives could be:

• Captives that derive a proportion of their income from outside the UK should not be subject to UK tax on that portion of their earnings, which could be a significant benefit for captives of global businesses.

• Where income is earned in connection with a connected company in the UK:

– Captives in the EEA used by UK companies will be assessed on the UK connected profits unless there is a significant UK non-tax reason for using the captive.

– Captives outside the EEA will be assessed on the UK connected profits in most circumstances.

• Protected Cell Companies (PCCs) will now come within the scope of the CFC rules by merit of the beneficial interest that a “controller” would have in the entity’s distributions or proceeds on winding up or disposal.

As already mentioned, there are a number of exemptions potentially available, including around the business profits gateway test. For example, where a captive can show that it is not reliant on significant people functions in the UK, such as through having employees in its country of residence, they could be excluded by the gateway. However, in practice this may be hard to achieve as few captives are likely to have sufficient substance to meet this test, particularly if they use an outsourced service structure.

Other exemptions may be applicable including the low profits exemption where total profits for the entity are not more than £500,000 (subject to no more than £50,000 derived from non-trading sources). There is also a low profit margin

exemption (accounting profits do not exceed 10 per cent of the “relevant operating expenditure”) and an excluded territories exemption, although it is expected that these will be of limited relevance to captives.

It must be noted that the legislation is still in draft and will not be enacted until later in 2012 by which time changes may be made. However, the results of the consultation released in the summer and the recent draft legislation generally suggest a welcome change in the principles of the UK’s CFC rules.

AonWhilst Aon is not a tax advisor, we recognise our clients that own captives will be interested in changes within the tax environment that may affect them and the purpose of this paper is therefore to create awareness of such developments. Specific advice should be sought in relation to the detail of the draft legislation and the specific impact that it may have on individual circumstances.

Aon Global Risk Consulting is a multi-disciplined team which is skilled in areas such as insurance, reinsurance, actuarial, finance, regulation and corporate governance.

Aon is a leader in captive management. Our extensive involvement spans more than 40 years in this arena and we currently manage more than 1,350 captive clients and deliver practical knowledge in an unbiased, independent manner.

For more information contact:

Charles Winter +44.(0) 20.7086.0494 charles.winter@aon.co.uk aon.com

Ken Read +44.(0) 20.7086.4184 ken.read@aon.co.uk aon.com

As you may be aware, there has been some uncertainty over the exact nature of Guernsey’s future corporate tax regime. To an extent this was dependent on the outcome of a review by the European Union into similar regimes in Jersey and the Isle of Man.

ECOFIN has now announced that following amendments to those regimes which involved removing elements that sought to tax locally resident individual shareholders in companies before they received dividends, these are now considered ‘approved’. What does this mean for Guernsey?

When it first became known that the EU was unhappy with the Island’s zero 10 tax system it was announced that it would be reviewed with a presumption that it would be replaced, probably by a territorial tax with a headline rate of 10 per cent. It is generally accepted that it was for this reason a review by the EU of zero 10 in Guernsey was suspended.

There has been some discussion since over the implications such a change might have for captives in Guernsey and for many there would be none. It was expected tax would only be payable to the extent the captive had a physical presence, office, staff, etc. in Guernsey, most do not.

A final decision on the future of our corporate tax system was deferred, pending the outcome of the Jersey and Isle of Man reviews. It was announced recently that the review of Guernsey’s zero 10 would recommence in the New Year but it would seem reasonable to expect a similar outcome if EU concerns over ‘deemed distributions’ are addressed.

This means the Island now has to make a decision to follow Jersey and the Isle of Man or change its regime. There is an election in April and it is already clear that this will not happen until after the new States Assembly is in place. Any uncertainty this may cause is not welcome. However for the vast majority of those with captives in Guernsey it should come down to a ‘Hobson’s choice’ between two positive outcomes, tax at zero per cent or no tax under a territorial regime.

The former seems the more likely but either way the fiscal neutrality afforded to the industry over many years should continue. So for most captives there is a little more certainty than at first sight may appear to be the case.

Graham Parrot Partner Ernst & Young LLP, Guernsey

Zero 10 in Guernsey – the current position for captives

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We are pleased to introduce our Executive Directors to you

together with a brief summary of each of their backgrounds.

The Board welcomes the most recent additions of Stuart Brown

and John Rowson who will add further experience and strength

in depth to our clients.

Top row from left to right: Graham Powell, Paul Sykes, Stuart Brown, Simon Walker Bottom row from left to right: John Rowson, Diana Knott, Derek Millar

Paul Sykes Managing Director Paul joined Aon Guernsey in 1993. In 2003 he took charge of

Aon’s White Rock group of Protected Cell Companies (PCCs),

the world’s leading provider of cell captives. In early 2006 Paul

moved to Gibraltar to lead Aon’s operations in Gibraltar and

Malta and returned to Guernsey in 2010 as Aon Guernsey’s

Managing Director.

Graham Powell Executive Director Graham has spent his entire career in captive management with

Aon having joined in 1979. He leads a portfolio of 20+ clients as

Operational Executive and is responsible for the management of

some of the largest and most complex Guernsey based insurance

vehicles. Graham is Head of Compliance and is responsible for

relations with the Regulator in Guernsey.

Stuart Brown Executive Director In January 2012 Stuart transferred to Aon Guernsey as an

Executive Director from the Aon Gibraltar office where he held

the position of Chief Operating Officer. Stuart has managed

captives, PCCs, open market commercial and life insurance

companies as well as Gibraltar’s largest reinsurance company.

Stuart will lead clients as an Operational Executive and hold

directorships on a range of client companies. Before joining Aon,

Stuart worked in audit at both BDO and Baker Tilly.

Simon Walker Executive Director Simon has worked for Aon for 10 years and has held a variety of

roles. For his first 7 years, he was responsible for a large portfolio

of Aon Guernsey clients in the capacity of Operational Executive.

Since that time, he has moved through a number of wider Aon

group operational roles. Besides his roles on the boards of Aon

Guernsey and some of its clients, Simon sits on the global board

of Aon Captive and Insurance Management (ACIM) and is the

Group Head of Operations for ACIM.

John Rowson Executive Director John’s first 7 years with Aon was spent managing captives

and PCCs for large global operations in Guernsey and Gibraltar.

In 2009 John moved to Aon Chicago working with Aon’s

consulting experts to deliver differentiated solutions to clients

utilizing captives, PCCs, risk finance and actuarial expertise.

John returned to Aon Guernsey in January 2012 as an Executive

Director and Head of the White Rock Guernsey PCC and

ICC companies.

Diana Knott Executive Director Diana began her career with the Aon Group in 1985 and was

appointed to the Board of Aon Guernsey in 2004. Diana leads

a portfolio of clients as an Operational Executive and holds

directorships on client companies. She has executive

responsibility for a diverse range of captive and PCC clients

including professional accounting firms, financial institutions,

FTSE 100 beverage and retail businesses.

Derek Millar Executive Director Derek joined Aon in Bermuda in 2000 before transferring

to the Guernsey office in 2004. Derek holds directorships

for a wide number of clients’ captives including the Aon

owned White Rock facilities. He acts as Operational Executive

for some of the office’s largest clients. Prior to joining Aon

he was an Underwriter at RSA for 11 years writing all non-life

classes for their major corporate clients.

Our Board of Directors

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Aon To Move Corporate Headquarters to LondonOn 13 January 2012 Aon Corporation announced it will move its corporate headquarters from Chicago to London which will be an important step in the fi rm’s global growth strategy. The move will provide greater access to emerging markets and take better advantage of the strategic proximity to Lloyd’s and the London market as one of the key international hubs of insurance and risk brokerage.

Aon’s focus on identifying global opportunities in emerging markets will strengthen its ability to drive future growth, build innovative products, develop talent and deliver shareholder value. Aon believes this move will also have several near- and long-term fi nancial benefi ts, including increased fi nancial fl exibility and improved capital allocation. As the proportion of Aon’s revenue from international operations continues to grow, the ability to allocate capital for investment and growth will be vital to the fi rm’s continued success.

Introduction to Captives Seminar

Aon Guernsey will be running a one day seminar on 21 June 2012 to introduce clients to the creation and management of captive insurance companies. This would be an ideal opportunity for clients who have staff that are new to captives or require a refresher. The seminar will cover the following topics:

•Whatisacaptiveandwhy would a company have one?

•Underwritingissues

•Accountingissues

•Investmentmatters

•ProtectedandIncorporatedCell Companies

•Regulatoryenvironment

The seminar is free to attend and will include a dinner for the delegates on the evening before. Delegates will be responsible for their own travel and accommodation costs.

For further information, kindly contact Derek Millarderek.millar@aon.co.gg

AonLine for Captives Aon Captive and Insurance Management have recently launched AonLine - an online communication network which enables our clients to have easy and secure access to their captive & insurance management documents at any time of day, from anywhere in the world.

Every client signed up to have access to AonLine will be given a secure username and password to access their specifi c micro site which includes all documents relating to the company, news and other insurance resources.

For further information, kindly contact your Operational Executive.

Nominated CharityAon Guernsey’s nominated charity for 2012 is Lungevity – a Guernsey based charity supporting those living with lung disease and their helpers. Lungevity was chosen as a result of a nomination by a member of staff whose family life had been aff ected by lung disease.

As a non-profi t and volunteer-based health charity Lungevity raises funds to purchase equipment for local people with lung disease. The equipment enables suff erers to strive to lead as normal a life as possible within the confi nes of their conditions. This permits greater fl exibility in activities of daily living.

Aon Guernsey will be supporting the charity through both fi nancial and non-fi nancial measures. In addition to an annual donation, funds have also been raised through the annual offi ce ‘fat fi ghters’ dieting challenge which have been donated to help purchase equipment. Staff will be assisting the charity in their fundraising events throughout the year.

For further information about Lungevity, please visit the charity’s website at: http://www.lungevity-guernsey.org.gg

Aon Captive & Insurance Master Class 2011Aon Guernsey hosted the inaugural Aon Captive & Insurance Master Class at the Chartered Insurance Institute in London.

During the event, delegates heard from a number of eminent speakers including the Chief Minister of Guernsey Deputy Lyndon Trott, RBS Senior Economist Neil Parker and Barclays Director of Global Investment Strategy Henk Potts.

In the keynote address the Chief Minister,

• outlined Guernsey’s commitment to sustaining its position as European leader in captive insurance and one of the top four captive jurisdictions globally;

• set out how Guernsey’s industry expertise and world-renowned reputation for robust but responsive regulation will help deliver that commitment;

• emphasised that Guernsey will lead in implementing IAIS international regulatory standards;

• showed how Guernsey’s economy has adapted strongly to the changing demands of the global economy.

Charles Winter of Aon Global Risk Consulting and Paul Sykes of Aon Insurance Managers Guernsey spoke about Solvency II and Guernsey’s position which will diff erentiate it from other domiciles. Delegates heard how the number of captives domiciled in Guernsey is expected to increase signifi cantly, once captive managers and owners better understand the implications of compliance with Solvency II.

Following the success of our inaugural Captive & Insurance Master Class at the CII in London last year, we will be hosting the Master Class again in London, at the Chartered Accountants Hall on Thursday, 3 May 2012.

Legal & Regulatory Risk for Non-Executive Directors

Aon Guernsey has recently held a seminar for local Non Executive Directors which focused on the legal and regulatory responsibilities of directors. The seminar was held at Aon Guernsey’s Disaster Recovery Suite and led by Paul Mudge, Aon Guernsey’s Compliance Offi cer and

Money Laundering Reporting Offi cer. Attendees heard about the current regulatory climate in the Channel Islands following the IMF visits and how this has aff ected the local Financial Services Commission’s Sanctions regimes.

Graham Powell, Executive Director of Aon Guernsey and Head of Compliance, said: “It is important that the Directors of captive insurance companies understand the personal risk of sanctions and litigation if an entity on which they act as Director is non-compliant with local legislation and regulations. Following the economic recession of 2008 there has been an increase in regulation which has specifi cally focused on corporate governance. Therefore, it is appropriate to remind ourselves that we are personally responsible for the compliance of the entities that we act as directors for.”

The event was oversubscribed and a second session is scheduled for 24 February 2012.

Aon Corporation (NYSE:AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human resources solutions and outsourcing. Through its more than 60,000 colleagues worldwide, Aon unites to deliver distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon’s industry-leading global resources and technical expertise are delivered locally in over 120 countries. Named the world’s best broker by Euromoney magazine’s 2008, 2009 and 2010 Insurance Survey, Aon also ranked highest on Business Insurance’s listing of the world’s insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on revenues in 2007, 2008 and 2009, and Aon was voted best insurance intermediary 2007-2010, best reinsurance intermediary 2006-2010, best captives manager 2009-2010, and best employee benefits consulting firm 2007-2009 by the reade rs of Business Insurance. Visit http://www.aon.com for more information on Aon and http://www.aon.com/manchesterunited to learn about Aon’s global partnership and shirt sponsorship with Manchester United.

© Aon Corporation, 2012. All rights reserved.

Aon Insurance Managers (Guernsey) Limited is licensed and regulated by the Guernsey Financial Services CommissionRegistered Office: Maison Trinity, Trinity Square, St. Peter Port, Guernsey, GY1 4ATRegistration Number: 5821FP7050

Paul Sykes Managing Director +44 (0) 1481.707901 Paul.sykes@aon.co.gg

Stuart Brown Executive Director +44 (0) 1481.707932 Stuart.brown@aon.co.gg

Diana Knott Executive Director +44 (0) 1481.707923 Diana.knott@aon.co.gg

Derek Millar Executive Director +44 (0) 1481.707966 Derek.millar@aon.co.gg

Graham Powell Executive Director +44 (0) 1481.707926 Graham.powell@aon.co.gg

John Rowson Executive Director +44 (0) 1481.707954 John.rowson@aon.co.gg

Simon Walker Executive Director +44 (0) 1481.707974 Simon.walker@aon.co.gg

Key Contacts