PartnerRe is the latest reinsurer to be seduced by Dublin
It has a low corporate tax rate, well-developed financial services centre, skilled local workforce and sound infrastructure.
And it’s only an hour away from most of the major European centres.
The recent announcement that PartnerRe will consolidate its European operations in Dublin, Ireland, on 1 January 2008 should come as little surprise.
It follows a similar decision made in August last year by XL.
Other Bermudian reinsurers wto be drawn by the reassuringly familiar combination of low tax and innovative regulation include Max Re, AXIS Specialty, Allied World and Ace.
But Bermuda reinsurers aren’t the only firms to have fallen for Dublin’s charms. AIG, Allianz, Axa, QBE and Zurich Insurance also have head offices in the Irish capital.
Under the proposed organisational restructuring, Partner Reinsurance Europe will operate as the principle reinsurance carrier for business underwritten in France, Ireland, Switzerland and Canada.
It will be capitalised in excess of $1bn and has received provisional ratings in line with those of the rest of PartnerRe’s operating subsidiaries: “A+” from AM Best and “AA-” from Standard & Poor’s.
When the EU Reinsurance Directive comes into effect at the end of 2007, Partner Reinsurance Europe and XL Re Europe will gain access to all EU member states.
This “passporting” right “entitles a company to set up a branch in another European Economic Area (EEA) state or to do business there on a cross-border basis, as long as they fulfil the conditions in the relevant directive.”
By virtue of consolidation PartnerRe will also gain from centralising its capital base, explained Bruno Meyenhofer, CEO of PartnerRe Global.
“In a single market, governments have to consider the fact that raising tax is not a good competitive decision
And there is the favourable rate of tax – 12.5% in Ireland – compared to 40% in Germany and 28% in the UK and Sweden.
“Tax is one consideration and it’s a serious one,” explained Meyenhofer. “It’s serious because it’s part of the cost of the product and you have to think about your clients and shareholders”
Tax wasn’t the only reason behind the decision to locate in Dublin, he insisted. Another draw was the fact the company already had a based in Dublin and the regulatory system was attractive. “The supervisor is active in terms of making the environment attractive. It was also an early adopter of the Reinsurance Directive.”
Yet there is no escaping the fact that tax has proved a significant factor in many recent jurisdiction choices.
So is Dublin set to become the next big European reinsurance centre? Or could it be Luxembourg? The tiny EU state has got Swiss Re’s vote.
It intends to form three new entities there to gain from the simplification of its legal structure – in terms of capital efficiency, compliance, and reporting requirements – under the Reinsurance Directive. In a company that size, savings are likely to be significant.
Swiss Re aims to have the new structure in place by mid-2009. Munich Re is apparently considering a similar restructure.
The intention of introducing Europe-wide reinsurance regulation was to provide a level playing field across the EU.
“Currently, some EU countries have no reinsurance supervision, in some countries supervision is light and in others it is very well-established. It’s quite mixed,” explained Meyenhofer.
A level playing field also entails opening up the market to new competitive forces.
This common side effect of the creation of a single market in Europe is actually beneficial, believes Meyenhofer. “In a single market, governments have to consider the fact that raising tax is not a good decision when competing with other jurisdictions.”