Dublin is beginning to provide fully serviced start-up opportunities for new reinsurers looking to dip a toe in the market.
Traditionally, Ireland's image has been one of an island of saints and scholars, where every visitor was sure of a warm welcome and perhaps a drop of Guinness or whiskey to warm their bones as well. Today, this image has changed significantly. Of course you can be still sure of a warm welcome and a warming drop too, but now Ireland, and Dublin in particular, is at the forefront of exciting and rapidly changing new developments in the e-commerce and financial services industries.
Ireland's economy is envied around the world. While many other economies have slowed or are showing signs of doing so, Ireland's continues to grow and looks set to continue on this path, defying many expert predictions. One of the primary reasons for this strength is the enormous growth in the international financial services arena experienced since the launch in 1987 of the International Financial Services Centre (IFSC). Recent changes now mean that international financial services operations in Ireland not only inhabit the IFSC, housing the 10% tax-rated companies located in Dublin, but they are spreading their wings further afield in Ireland.
At the heart of international financial services, and the IFSC, has been the successful development of the international insurance and reinsurance industries. Since very modest beginnings back in 1987, the captive insurance industry in Dublin has grown considerably to the current position where it now has over 190 active captives, of which more than 50 are writing direct insurance. Many global household names are operating captives in Dublin, including McDonald's, Motorola, Hewlett-Packard, Michelin and Siemens as well as Coca-Cola, Ford and IBM. Many companies have significant European exposures but in addition, there are captives covering risks in countries from the Pacific Rim through Asia and the Americas. A small, but growing, number are now using their captives as central points for their risk financing strategy.
New growth areas
With recent changes in the insurance and reinsurance markets, and with new and varying demands for services and products, Dublin has evolved from a centre for ‘traditional' captives to a hothouse catering for many types of insurance and reinsurance operations.
As the expansion of the Dublin – and indeed Irish – financial services sector continues apace, a number of new initiatives are being launched. One of the newest offerings on the block is re/insurance company incubator systems, designed to meet the needs of clients wanting to progressively set up an independent operation in Dublin. Incubator systems – which Aon Insurance Managers (Dublin) Ltd (AIMD) has been pioneering over the past few months – offer clients a complete wrap-around service for the set-up, operation and management of a Dublin-based company, until the client decides to fly on an independent basis. There is no defined timeframe for the move to independent management and in certain cases this can take a number of years.
Core management services provided by the ‘foster' company include assistance prior to formation, such as a feasibility study, as well as during the process. As the ‘incubated' company becomes staffed up, it can sub-contract from the service provider all or part of its services. Once the company is formed, the foster company can offer general management and administration, accounting and financial services, and insurance services. In this way, the incubator system can allow a new entrant to the Dublin market to hit the ground running, using local skills, knowledge and assistance to launch and develop its operations.
AIMD has already assisted in the set-up and approval of an IFSC life and non-life third party insurance company, which continues to make its base at the AIMD office. In addition, AIMD has licensed a captive writing third party business, again operating with AIMD staff located on the AIMD premises. Most recently, two non-IFSC reinsurance companies, one for an international bank and one for a Bermudian reinsurer, have been licensed using the same process. Being non-IFSC, the two recent additions to the list are taxed at the domestic tax rate of 20%, though this will fall to 12.5% from the beginning of 2003. The final stage in the story so far is AIMD's appointment by another Bermuda-based reinsurer to set up an incubator company.
For companies that want to have a Dublin operation, the incubator system can make sense for several reasons. To begin with, it provides the re/insurance company with access to highly trained and experienced staff in areas such as underwriting, claims, accounting, treasury and administration. Incubation also allows a new operation to set up in the shortest time necessary to take advantage of any opportunities that may arise, yet still operate in a controlled and efficient manner. New start-ups to Dublin could find themselves playing a serious game of catch-up with the many well-established players populating the city, but this problem is minimised using the incubator system. Instead of needing to concentrate on the nitty gritty of day-to-day operations, incubator companies can focus their efforts on marketing and obtaining their target business.
In more general terms, Dublin has a number of commercial advantages as a location for setting up a reinsurance company:
International interestMany insurance and reinsurance operations based in the US, Canada, Bermuda, Cayman Islands and London are now looking to Dublin to expand their business. There are a number of key reasons for setting up an operation in Dublin, though probably the most important is that without a Dublin operation many international companies are missing out on European business. With many reinsurers established in the city, Dublin is now a centre for the placement of reinsurance business flowing from across Europe. Nowadays, markets do not have to look too far past their own borders to place their business, but potential competitors not established in a territory could find themselves missing out on choice business.
With excellent people and no work permit issues for Dublin-based operations, many multinationals based in island domiciles overseas are already formulating exit strategies. And Dublin companies are ensuring that if this business decides to leave, there is an easily accessed and welcoming new home waiting, with a reputation for excellence which has been earned through hard work. The dedicated professionals working within the financial services sector can respond to emerging and changing markets, as well as being able to more than adequately meet client needs.
Dublin's financial services sector will continue to expand and the incubator system will enhance this growth. With the re/insurance markets in London and around the world hardening, the need for corporations to control increasing costs will cause them to look more to captives and what the Dublin market has to offer. Thus the future for insurance and reinsurance companies establishing in Dublin looks very positive. “The future's bright, the future's green.”