With uncertainty over future corporatin tax rates settled, Dublin sees interest in captives coming from new territories.
Ireland is estimated to be the fifth largest reinsurer of US primary insurance with over $450 million of reinsurance premiums from the United States alone. That Ireland has grown to this size in little over 10 years is a measure of the success of Dublin's International Financial Service Centre (IFSC). The IFSC has attracted 38 captives from North American sponsors including some of the largest major US corporations including AT&T, Coca-Cola, Motorola, EI Du Pont and HJ Heinz, and three important Bermuda companies, EXEL Ltd, Centre Solutions and this year, ACE Ltd. Excess liability insurer, Starr Excess, is soon expected to join the list.
The IFSC was created in 1987 around Dublin's Custom House docks as part of a scheme to revive a depressed area of the city and increase the country's financial services industry. Since then, it has become home not just to 146 captives, but also subsidiaries of overseas insurers and reinsurers, such as Australia's QBE who take advantage of Ireland as an access point to the European Union, plus numerous banks, financial services companies and fund managers. Twenty-one of Dublin's US owned captives are likewise taking advantage of the EU freedom of services provisions to cover European risks from a single location.
Earlier uncertainty over the corporation tax rate in IFSC has been resolved. From 2005, or earlier if the European Commission gets its way, until 2025, the rate of corporation tax will be 12.5% for all financial services companies in Ireland. This rise of 2.5% from the concessionary rate of 10% that the IFSC currently enjoys is unlikely to make a material difference to current or future captive owners, believes David Smith, who has been named international insurance representative for the Irish Development Authority (IDA). Another attraction of Dublin for captives is that they have to pay neither withholding or premium taxes.
In any case, Mr Smith points out since many of Dublin's captives, particularly the largest, have US and UK parents and are classed as Controlled Foreign Corporations (CFCs) by their own tax authorities. For them, the tax change is a neutral one.
Having been very successful in attracting and retaining captives owned by major US industries, Dublin is now turning its marketing efforts toward countries where the captive concept is under-developed, such as Japan and Italy. "We are getting a huge amount of interest from Japan," says Mr Smith.
In his role as international insurance representative for the IDA, Mr Smith is responsible for the marketing and policy development of Ireland's international non-life insurance industry. He works closely with the existing IFSC companies, Dublin International Insurance Managers Association (DIMA), An Taoiseach's (the prime minister's) insurance working group and the regulatory authorities.
The IFSC already has 10 Japanese owned captives, the most recent of which is a reinsurance captive of Yokohama Electric Corp, which will reinsure the group's casualty insurance policies. A report from Nikkei Weekly says that by the end of the current financial year, all the group's reinsurance needs will be underwritten by the captive.
So far this year, five new captives have been approved: four reinsurers and one direct insurer. Another three, two reinsurance and one direct, are in the licensing process.