Symposium panellists debate location
Where a reinsurer chooses to hold its head-office is not a driver of success or failure, but can, nonetheless, have a strong bearing on the firm, according to the panellists on the annual Baden-Baden Symposium.
Domicile has become a hot topic of late, in particular because of several companies’ decisions to shift their head offices to Zurich – recent examples being Amlin, Catlin and Allied World Assurance Company. However, some panellists felt that other variables are more important than a company’s base of operations.
Tom Bolt, director of performance management at Lloyd’s, argued that market access, rather than domicile, was the key. He said that the £245bn London insurance market, where offices from the world’s top reinsurers are clustered around a small area of the city, coupled with Lloyd’s which operates in 200 territories and is licensed in over 8 of them, offers unrivalled market access.
We have something which our nearest competitors, New York and Tokyo, can’t match, which is intimacy,” he said. “If you stood on the roof of the Lloyd’s building and you threw a coin you could hit the offices of the top 20 reinsurance firms.”
He added: “Unless you are the chancellor of the exchequer or a finance minister I don’t believe domicile matters. London may or may not be the domicile of choice but it is the home of insurance. The concentration of talent and expertise on one underwriting floor at Lloyd’s, let alone within a square mile of the building, should not be underestimated.”
John Berger, vice-chairman of Bermudian (re)insurance group Alterra Capital and CEO of its reinsurance division, said the way a company was run was far more important than where it was run from. “To a degree, the choice of domicile can be largely irrelevant, as what will effectively determine the level of success for any organisation is the quality of its leadership, its underwriting talent, and the overall financial strength of the company,” he said.
He pointed out that in the recent past, both SCOR and Lloyd’s had been on the ropes, but strong management had turned the situation around.
While one of the reasons often cited for choice of domicile is tax, the panellist played down its importance. “I don’t think your business should be driven by fiscal considerations, which are moving targets,” said Victor Peignet, CEO of SCOR Global P&C – the non-life division of French reinsurer SCOR.
For Peignet, the key consideration is capital flexibility – the ability to move capital to where it is needed most. “For international groups there is not one domicile – there is a range,” he said. “While the parent domicile is important and it is certainly the most visible, it is not in many cases the most critical force.”
He added, however, that the forthcoming Solvency II regulation would have an impact on domicile considerations. Companies with Europe-based subsidiaries but whose home domicile lies outside the Solvency II perimeter may find themselves disadvantaged if their home country; regime is not considered to have an equivalent capital regime to Solvency II.
Martin Albers, head of Swiss Re’s Europe division, agreed that tax was of lesser importance when choosing a domicile. “An attractive tax regime is a factor but with a distributed group very often you pay taxes where you conduct your business, so your domicile is much less than you think,” he said. “It is the double-tax agreements you have with the various centres of your business that is relevant and not just the tax regime at the head office.”
However, he felt it important that the domicile of your main operating units should have specific features, such as robust governance, a stable economy, a strong currency, good access to capital markets and ability to freely hire talent from around the world. “Does domicile matter? Overall I think it does,” he said. “The economic substance, quality of regulation and business values of your headquarters domicile become part of your brand.”