Dublin is continuing to grow as a location of international re/insurance organisations. By Sarah Goddard.
Whether it's the luck of the Irish, or some Celtic magic being woven, Dublin remains on the up and up as an international financial services centre, and no more so than in the re/insurance sector. The past few months have witnessed a constant stream of new reinsurers setting up shop in the Irish capital, lending local market practitioners more fuel to their insistence that Dublin is beginning to challenge London as a business centre.
Dublin's genesis as a re/insurance location started with the entry of captives to the city, when in the 1980s the Irish government promoted Dublin as a domicile in an effort to inject some life into the stagnant economy and boost employment. The formation of the International Financial Services Centre (IFSC) provided a tax-friendly regime - just 10% corporation tax was charged to companies undertaking international business - and aimed to regenerate the decayed Dock area in Dublin. Nowadays, captives remain a major part of Dublin's re/insurance business; last year, the city registered fifth in the league table of fastest-growing captive locations in the world, adding 15 new captives to its list.
But increasingly, it is reinsurance companies that are setting up in Dublin. XL was the first to open a Dublin office back in 1990, when XL Europe Insurance Co started writing excess casualty business. A few years later, Bermuda competitor ACE also launched a Dublin operation, but it still took some time before significant numbers of other re/insurers followed suit.
Nowadays, the IFSC has more than fulfilled its original remit of income and job generation. Indeed, business has been booming in Ireland in recent years; the economy has grown at an extraordinary rate, what used to be net emigration of people has become net immigration, and Dublin has become one of the liveliest cities in Europe.
On the business side, the introduction of an across-the-board 12.5% tax regime for all companies operating in Ireland at the beginning of next year has meant that the IFSC has changed in function from a low-tax business zone to a financial services centre more analogous to the City of London or La Défense in Paris. This tax regime also means that it is one of the kindest onshore locations for international business, and this is one of several reasons why new re/insurance entrants are now launching in the city.
Rick Hodgdon, executive managing director of new entrant Transamerica International Reinsurance Ireland Ltd, sees a number of advantages Dublin enjoys compared to other European locations. "Dublin is a good platform to get into Europe," he said. "There are a lot of insurance people here which makes it attractive from the employer's viewpoint and there is a good education base, so when an employer is looking at hiring staff, they come well-equipped and well experienced."
In addition, Dublin is now a "well-regarded domicile for reinsurance," he added. Like many European countries, reinsurance is not fully regulated, though proposed reinsurers are scrutinised by the regulator before they are allowed to start trading.
"The regulatory system very business-friendly; the regulators are pragmatic, dealing with things on timely basis," commented Eamon O'Brien, managing director of Aon Insurance Managers (Dublin) Ltd. "They are taking a harder look at reinsurance companies coming in, and requiring a minimum capital of ¤650,000 for reinsurers. They also look at promoters, directors and managers of new reinsurers as part of the move to regulate reinsurers." This is a reflection of the move towards pan-European reinsurance regulation currently under discussion at European Commission level.
Mr Hodgdon described the local regulatory system as "an effective system of regulation, with well-qualified people which encourages business and well defines it."
This regulatory support of Dublin business is a theme echoed around the industry, nowhere more so than by Adrian Ryan, director of underwriting at newly-opened Axis Specialty Europe Ltd and Axis Re Ltd. Set up as the European headquarters of Bermuda-based Axis Speciality Ltd, the Dublin operation will write specialty lines across the EU. "Choosing Dublin as a location was very simple," said Mr Ryan. "It is a regulator-friendly environment - there is regulatory discipline without over-restriction." This is in contrast to the UK, he said where the regulator "is strangling our business," he commented. Axis is not discounting London as a source of business: in fact, it has opened a branch office of the Dublin operation in the heart of the City, as well as a contact office for the Bermuda headquarters. But as far as Europe is concerned, Dublin will be the heart of the underwriting operation. As well as the regulatory benefits, the "tax environment is very friendly," Mr Ryan added, and developments in technology mean it is no longer vital to be physically situated in a particular location. "More and more companies are going to Dublin rather than London," he contended. "With the level of technology now, you don't need to be anywhere in particular."
Over recent years, several high-profile reinsurers have made Dublin their European home. These include Bermudians Max Re, Renaissance Re, Imagine Re and the now-defunct Overseas Partners. Axis - a Bermuda-based re/insurer set up in the wake of September 11 - is followed this path, and local sources suggest Allied World Assurance Co (AWAC), another of the post-September 11 Bermuda start-ups, is set to follow suit. The latest to join this club is Platinum, the new Bermuda-based reinsurer which is taking over St Paul Re's business. In a recent SEC filing Platinum disclosed an Ireland-based subsidiary, Platinum Regency Holdings, as well as a UK company, Platinum Re (UK) Ltd.
" We are trying to develop the re/insurance sector to make Dublin the Bermuda of Europe, " said AIM's Mr O'Brien. Certainly, it has attracted some of the innovative Bermuda writers which were looking for a European base, as well as providing a base for some alternative risk transfer deals such as Hannover Re's life securitisations, which have transferred acquisition costs of life reinsurance treaties into the capital markets.
In fact, international life reinsurance business is beginning to grow in Dublin, particularly since the XXX regulations surrounding life reserves were brought into effect in the US at the beginning of 2000. According to Keith Parker of Canada Life Re, which opened for business in Dublin towards the end of last year, the double taxation agreement between Ireland and the US, as well as the differing reserve and minimum capital requirements, lend North American life insurers a hand in dealing with their XXX obligations. Dublin provides "tax and regulatory arbitrage," for these companies, he commented, noting that there is a definite influx of life reinsurers into the city. Canada Life Re currently is focussing on US and EU-based traditional life reinsurance, as well as XXX business, though may be extending its remit to financial reinsurance in the future.
This is similar to the path being trodden by Transamerica International Re, which is part of Dutch financial services giant, Aegon. "The business is primarily from the US," explained Transamerica's Mr Hodgdon, "then we are looking at other Aegon affiliate business throughout Europe, and then at other unaffiliated business." Since it set up in December, Transamerica has been transacting directly with US writers, a lot of it for term annuity - XXX - business.
In addition, "the tax treaty between Ireland and Netherlands works very well in our favour," commented Mr Hodgdon, and, following the same pattern as Canada Life Re, his company is adhering to regulatory standards in the parent company country. "We have set up as if we are in a regulated environment," he said.
Despite this influx of new writers to Dublin, it is debatable whether the city can take over London's supremacy in the European-based re/insurance market leader stakes. As Dermot O'Donohoe, CEO of XL Europe, pointed out, "the leading global programmes are in London." XL has now moved its property and employers' liability business from Dublin into its London operations, though the casualty book remains in its IFSC-based offices. "Dublin will continue to write excess casualty business," he said. "It is, in effect, the mandated centre for non-US excess casualty," with professional lines such as directors' and officers' business, and errors and omissions, as well as the ECS operation for environmental business in Europe. XL's casualty business has doubled this year, reflecting both the rise in premiums rates and new customers coming on board, with much of the business coming from London market placements.
And so it would appear that Dublin's desire to be a credible international re/insurance centre is coming to fruition. At the same time, the Irish international sector seems to be enjoying giving other centres a decent run for their money.
By Sarah Goddard
Sarah Goddard is the editor of Global Reinsurance.