Partner Re, XL, Allied World, Quanta and Max Insurance are all based out there. No it’s not Bermuda but Dublin, Ireland that is becoming one of Europe’s most attractive reinsurance centres. Helen Yates reports.
“Dublin is increasingly being viewed as a major reinsurance centre,” says Scott McIntosh, director Swiss Re Europe SA Irish branch and chairman of DIMA [The Dublin International Insurance & Management Association]. Traditionally a captive domicile, the Irish insurance market is becoming a force to be reckoned with. Dublin, naturally, is at the centre of the market with its well-established professional services, international links and skilled English-speaking staff easing the market’s development.
In recent months a number of major players have set up shop or chosen to consolidate their operations there. According to a recent article by Standard & Poor’s, Bermuda could even start losing out to markets such as Dublin, Luxembourg, Dubai and Zurich. “It is clear that Bermuda is not the only place that is attracting reinsurers – you may see these centres grow alongside each other,” predicts Costas Miranthis, CEO of Partner Reinsurance Europe Limited Ireland.
A market in the making
The Irish insurance market has its roots firmly in captive insurance. As a result it has an impressive network of captive managers and professional advisors. Leading international companies such as Ford Motors, Cadbury Schweppes, Nokia and IBM have their captives in Ireland. At the end of 2007, Ireland was home to over 185 captives, ranking it third in Europe. Guernsey and Luxembourg are the largest European captive domiciles with 305 and 269 captives respectively.
From a primary insurance perspective, Ireland ranks joint second in the world with Switzerland (after the United Kingdom) in terms of its premiums per capita (according to Swiss Re Economic Research & Consulting). Despite the relatively small size of the market it ranks 14th in the world in terms of its total premium volume ($47bn in 2006, up from $39bn in 2005 according to Swiss Re). Life insurance makes up the majority of gross written premiums. Total life premiums were $37bn (€29.7bn) in 2006, up from $30bn (€23.7bn) in 2005 while total non-life premiums amounted to $10bn in 2006, up from $9bn (€7.3bn) in 2005.
“With its 12.5% tax rate, English-speaking workforce, conducive infrastructure and access to the London market, Dublin is looking ever more attractive
The growth of foreign risk business has contributed significantly to the growth in the non-life sector. Non-life net premium income in 2006 was €5.8bn comprising €3.7bn Irish risk business and €2.1bn foreign risk business. Comparing the 2006 figures to 2005 reveals that total net premium income written in Ireland increased by 5%, but separately, Irish risk business increased by 2% while foreign risk business increased by 10%.
Ireland’s track record in pan-European business is one reason for its growth as a reinsurance domicile. Including part-time and contract staff, over 12,000 people work in the insurance sector in Ireland. Over half of them are employed by subsidiaries of companies with head offices located outside of Ireland.
Domestically, motor (40%), fire & damage to property (25.4%) and liability (20%) insurance are the dominant lines of business. For foreign risks there is a more equal breakdown. In 2006, Motor insurance represented 14.15% of the market compared to 10.68% in 2005. In 2006, Liability insurance represented 21.8% from 28.99% in 2005. Fire and damage to property insurance has risen to 23.85% from 22.39% of the market and accident & health increased to 17.27% from 15.09%.
Dublin is expected to reap the benefits of low tax and new European regulation. It was an early adopter of the Reinsurance Directive, which allows reinsurers to “passport” into any EU country. The directive means players can be located anywhere in Europe and write business anywhere in Europe. With its 12.5% tax rate, English-speaking workforce, conducive infrastructure and access to the London market, Dublin is looking ever more attractive to global reinsurers. “It is the only English-speaking country in the Euro-zone and is the leading centre for cross-border life insurance in Europe, having overtaken Luxembourg at the turn of the century,” says Colm Fagan, managing director of Life Strategies Ltd and head of the Solvency II subgroup of the IFSC Insurance Group.
“At the end of 2007, Ireland was home to over 185 captives, ranking it third in Europe
Ireland was the first country to transpose the Reinsurance Directive, when it was brought into domestic legislation in July 2006. Sarah Goddard, CEO of DIMA, was clear on the advantages it would bring. “The early adoption of the Reinsurance Directive means that Ireland is the first EU member state where the reinsurance sector is fully regulated under the Directive’s requirements. We believe that the adoption of the directive, through today’s Statutory Instrument, will further enhance Ireland’s attractiveness as a location for global insurance and reinsurance companies.”
The Irish Financial Services Regulatory Authority (IFSRA) is considered to be a “pro-business” regulator. Miranthis says the regulator’s decision to adopt the Reinsurance Directive a year early was one of the reasons that Partner Re chose to consolidate there. “It created certainty,” he explains. “Some would argue that the Irish Financial Regulator was over-enthusiastic in implementing the Directive, in that it imposed a higher regulatory overhead, but the resulting benefits have more than offset the disadvantages,” adds Fagan.
The IFSRA prides itself on being efficient and responsive – allowing new companies to set-up quickly and adhering to a regulatory framework that is fully in line with EU standards and requirements. With the Reinsurance Directive behind it, the next job will be in preparing for Solvency II – a job already underway with its direct involvement in the quantitative impact studies.
Home from home?
“Dublin has a number of distinct advantages including the GMT time zone, the use of English as the primary language, its relatively low corporate tax rate, its common law system and the quality and quantity of service support infrastructure,” explains Swiss Re’s McIntosh. “Ireland uses a pragmatic accounting regime, there is a relatively low level of government bureaucracy, its borders are relatively open (from a work permit perspective), and of course its physical proximity to other key markets is highly advantageous.”
“Many companies established in Bermuda have then chosen to locate their European base in Ireland
According to Standard & Poor’s: “Well-established insurance domiciles particularly in Europe (Ireland, Luxembourg, and Switzerland) have significantly enhanced their competitiveness through competitive tax rates and the advent of ‘European Passporting’. The growth of these domiciles highlight that market access, infrastructure, and talent are also important in choosing locations.”
Dublin’s history as a captive domicile means it already has many of the service providers and professional advisors necessary for a global insurer or reinsurer. “There is a well-established infrastructure, with strong expertise in actuarial, legal, accounting and administration,” says Fagan, adding that the competition has increased since he established his actuarial consulting firm in 1993. “Competition is also intense in legal and accounting, even though the ‘Big Four’ dominate accounting advice, much as in other countries. There is an abundance of other service providers and a healthy influx of new employees to the workforce each year.”
The successful development of its International Financial Services Centre, based at Dublin’s Custom House Docks, has helped develop a talented, English-speaking workforce attuned to the needs of global businesses. Miranthis’ only complaints are that the city is expensive and that Dublin’s international airport is in dire need of expansion. Otherwise, the Irish capital is home from home.
So is Dublin the natural solution for a Bermuda reinsurer? “You can passport through to the rest of the EC with a proactive regulator, low tax environment and decent professional services,” explains Miranthis. “For us was the right solution but it was in response to very specific requirements.” He is keen to stress that the decision was based on more than just tax. “Lower tax rate is a plus – but not a driving factor.”
“At this stage, ignoring the usual protests, tax surely must become a significant factor
It is true that many companies established in Bermuda have then chosen to locate their European base in Ireland. This has been the route of XL, Partner Re, Axis, Ace, Quanta and Allied World on the P&C side and companies such as Scottish Re and Northstar Re on the life side. Financially it makes sense to consolidate “due to maximum capital fungibility and simplified financial reporting”, explains McIntosh. The only decision then is whether to choose Luxembourg, Dublin, or somewhere else. At this stage, ignoring the usual protests, tax surely must become a significant factor.
Miranthis points out that Zurich is also proving attractive, with a number of Bermuda players opening branches there. “We found Dublin attractive,” he explains. “A number of other firms had to respond to the Reinsurance Directive and Luxembourg was chosen by Swiss Re. A lot of that will depend on a company’s particular history. You look at your options and you decide. Other people may also find it attractive. QBE has gone to Dublin so there does appear to be some momentum building,” he adds.
Helen Yates is editor of Global Reinsurance