Global Reinsurance hosted a roundtable lunch at Buswells Hotel in Dublin to discuss the future of Dublin's as an insurance and reinsurance market.Taking part were Noel Treacy, minister for Science, Technology and Commerce; Emily Sherrin of the Department of Enterprise, Trade and Employment insurance division; Ian Clancy, branch manager J&H Marsh & McLennan Management (Dublin) Ltd; Reinhard Elers, managing director Hannover Re Advanced Solutions Ltd, Stephen Higginson, joint general manager treaty division QBE Insurance & Reinsurance (Europe) Ltd, Eamon O'Brien, managing director, Aon Insurance Managers (Dublin) Ltd; Desmond O'Donohoe, chief underwriting officer, XL Europe and David Smith, international insurance representative, Industrial Development Authority (IDA), Ireland. Lee Coppack, co-editor of Global Reinsurance, acted as moderator.
Lee Coppack: I would like to start by giving everybody a chance to say what they think are the strengths, and to a certain extent, the weaknesses of Dublin as an insurance and reinsurance centre. A second question is: Should we say Dublin or the International Financial Services Centre (IFSC)?
David Smith: In terms of the IDA's point of view, being a marketing organisation, I think the brand of the IFSC is probably one of the biggest things worth promoting. Eleven years ago when we started, I would say that if you went into an XL of Bermuda and said: “Will you come to Dublin, Ireland?” there would have been very few people who would have struck a chord with that. Unless they were from Ireland, they would probably not have known where it was and what you were talking about. At least now, when you go into any major company, no matter where it is, they have a good realisation of what is happening in Dublin and the activities that they can do. In terms of what we perceive the strengths to be, the IFSC is nearly a brand in its own right and when we are marketing, we are pushing this as one of the main attractions.
I suppose the other big marketing fact now is that we succeeded with most of the other companies that we have been trying to get for the last 11 years, so we have a huge amount of flagship companies. When you go to Germany, they will ask you what is happening, and you can name the companies that are here. You say that Cologne is here and Hannover is here, and if you go to any country you can name, you can take one or two really leading companies - and say: “Well, these are here.” That makes other companies ask what is happening.
In terms of the other advantages, as an insurance centre it is quite accessible. The people are there to be got. It is an English speaking country, which in insurance is quite important. Also, as of 1 January we are also the only English speaking euro zone country. We have a common law system, which is quite useful because most insurance conflicts, no matter where they come from, are modelled primarily on the common law system. They are some natural advantages and some advantages that have been built up through the marketing efforts of the IDA. Also, now, it certainly is the marketing effort of the companies themselves. For every new company attracted, that is another marketing agent for us.
Lee Coppack: Any weaknesses that you see?
David Smith: Oh, no!
Lee Coppack: Or areas where you think that development is needed? Opportunities, as they say.
David Smith: There are always areas for us to work on. I think the general weakness is that we should have started this 25 years ago instead of 11 years ago, but having said that, we have come on apace in the short time that we have been here. If there are any specific weaknesses, certainly none of the companies we have come across have said: “Well, I cannot go to Dublin because of that reason.” When they compare to Dublin, they are always making a choice between (a) not doing anything, staying home (b) possibly one or two other centres, and then Dublin itself. Most of their key criteria are: can they do the business here, will they be successful, can they run a profitable business? Most would say: “Yes, we can do it,” and then possibly it comes down to some intangibles after that.So, there is no outstanding weaknesses that we say we really have to fix. We fixed the major marketing weakness from last year in that there was uncertainty over the tax. The rate of 12.5% from 1 January 2003 is a certainty. That has wiped nearly that whole slate clean. There is always work to be done in making sure there is a work force there, so we are working with Dublin International Insurance and Management Association (DIMA) and the Insurance Institute of Ireland to make sure that the courses they are running are as relevant for the IFSC as they can be.
We are working in the IDA within the state system to make sure that all the things we put in place before, which is the open door policy of the state system, are there and remain there. I am not sure I see a huge amount of weakness.
Lee Coppack: Now can I turn to Reinhard. Your thoughts . . .
Reinhard Elers: What we basically did in Hannover was comparing domiciles specifically in terms of non-traditional balance sheet protection reinsurance lines, and the regulatory and accounting environments which allow us to compete with other companies with domiciles in other favourable jurisdictions, particularly in Bermuda.
Dublin has certain benefits for us. It shared some of the benefits of Bermuda and other domiciles but, of course, the strong points were the close ties with Europe being part of the European Community, being relatively accessible from a German stand point and, in particular, double taxation agreements. Tax has always been an issue in a business which is very competitive worldwide. You have to look at all the factors, and that includes tax as well. Tax also has to work with double taxation agreements. That was the particularly strong point of Ireland. It looks like that is going to continue, so from that point of view the future should be relatively bright.
I think the companies discover that there are additional, positive aspects of being here, one of which is the accounting rules which allow greater flexibility, particularly if you compare them to some traditional continental European accounting rules. They better reflect the economic value of transactions which allow them to produce less of a balance sheet strain than they would do on a German balance sheet, for example. So, that is it in a nutshell, the particular strengths for our group to be here in Dublin.
Lee Coppack: Steve, your point of view.
Steve Higginson: Talking on behalf of QBE Europe, we are a slightly unusual animal in the context of this lunch in that we are not here as a balance sheet protection reinsurance organisation, captive manager, ART or similar. We are here as a general, international traditional reinsurance organisation, writing a multinational, predominantly European portfolio. As a result, some of the benefits to other entities do not accrue to us at all. We, it would be fair to say, ended up in Dublin by chance rather than by design having originally established ourselves in Shannon.
Having done that, the benefits in addition to the tax position for us as an Australian multinational insurance, reinsurance group would be to have at that time a European presence outside the London market. That continues to be an area of considerable benefit to us. We have developed extensively into Europe through Dublin, which London would not allow, and even with the advent of Paris, on behalf of our European operations Dublin continues to be an area of particular importance for us.
I think the benefits, therefore, are very much the European personality that the Dublin presence provides to us. Probably, the only real difficulty we face, or areas of concern, would be the problem of finding appropriate skilled personnel in Ireland to service our European needs. We have relocated quite a few people into Ireland for that purpose but on the basis of being pan-European in our attitude to our clients, we need to have a pan-European work force anyway, so in a sense that is not a down side.
Lee Coppack: Emily, from the regulatory point of view?
Emily Sherrin: As regulators, without drawing any comparisons with other jurisdictions, I think one of the things that we do pride ourselves on is flexibility and responsiveness to industry needs. If a company needs something quickly, we will do our best to respond in the time frame that business needs. We are very conscious of the market that we are regulating. At the same time, we are working with harmonised EU rules, which I think is a great strength for companies located here. There is the passport right into other EU countries. We are very conscious of standards that we have to maintain within that framework, so that while we are flexible and working within a common and harmonised legislative system, we are very pro-business, very pro-development. We try and be as responsive as possible to new business ideas, and from that point of view the lines of communication that we have with the industry through the IFSC committee, on which we are all represented, are extremely important. We can learn more about the companies we supervise, and they can learn more about why we are taking a certain attitude. We can discuss things, bring the proposals to the table and we can thrash them out and say what is right and what is wrong. It is not just an arm's length distance regulation.
Lee Coppack: Ian, a captive manager's point of view?
Ian Clancy: From a captive perspective, I think the growth in Dublin over the last eight-ten years has been steady, if not spectacular. It has grown quite nicely. The profile of the companies that we have in Dublin now is very desirable. One of the strengths is that having got the captives in at the initial stage, we have now added the excess casualty carriers, the finite risk reinsurers. From the base of the captives with the additional players coming into the market, I think the profile of Dublin has increased considerably internationally. That is working very well for us now.
I think we have suffered to an extent over the last six years or so with the adverse commentary, vis-a-vis our tax situation. As David mentioned, that has been clarified for us and is further adding to our strengths. In terms of weaknesses, I would not say we have weaknesses. I would say we have challenges in terms of moving forward. One of those is clearly the availability of labour. We are in many ways a victim of our own success in that finding people with the skills or even, indeed, people at the basic entry level at present is proving more and more difficult. That is proving quite a challenge for us in Dublin.
Emily has commented about the regulatory environment and I would support her comments that it is a responsive regulator that we are dealing with. In terms of how we might like to see developments for the captive sector, there are a number of areas. We would like to see moves towards some form of rent-a-captive or protected cell legislative over the coming years to see if that would open a whole new market for us. Also of interest would be the potential developments of the EU insurance legislation, and the impact that may have on captives and in particular the smaller captives. That is not a concern but an issue we need to look at.Having said that, there are a lot of opportunities. I would like more inter-action among the players in the Dublin marketplace as we move forward. We have a bit of work to do ourselves in terms of having Dublin as an insurance marketplace that is acting as a market in its own right.
Lee Coppack: Maybe we can come back to that because I think that is an interesting point. Dermot . . .
Dermot O'Donohoe: No comments that differ really from what has already been said. The tax is obviously a significant advantage. To pick up on the regulatory point that Emily raised, today's market is dynamic; it is changing all the time. We need to be able to change direction very quickly. Even if you think you are going to go one way, you need to be able to respond very quickly. If you don't, you get left behind. Quite often the product decisions and product cycle decisions have to be made in weeks rather than months or years now. We have found that the regulatory environment in Dublin to be friendly to that.We broadened our license considerably from what we actually originally came here to do. So in addition to our core business, we branched out into some of the other areas, the finite, the financial products, even some of the more traditional areas where we can do virtually anything now out of Dublin. The regulatory environment has been key to that, as has the reinsurance flexibility of the parent company. In common with J&H Marsh, we have also found it, at times, difficult to get the kind of people we need. We do not feel that it is negative, because we think that for a European business, we do need foreign nationals to service those accounts and service the business. The only, I suppose, negative thing in that sense sometimes is that we have found that the rate of personal tax that applies in Ireland has been a disincentive to removing high level personnel from one jurisdiction to another, but by and large we manage to get round that.
Eamon O'Brien: I think one of the problems with Dublin to date, although we have addressed it, is the fact that we have not got the message out there. Several times in several parts of the world, when Dublin's name was mentioned, particularly in non-life insurance and the captive market, we were not well known. When Tillinghast did the marketing development plan for Dublin a year and a half ago, they indicated that we needed a Mr Dublin. That now is David Smith with his title of international insurance representative.
The solid platform that Dublin has is that we are a blue chip domicile. We are very conscious of that reputation and we want to maintain it. From a regulatory point of view, the environment here is very much business friendly. Long may that continue, because that is a very important part of our ability to market the centre and our ability to develop it.
In terms of the accessibility to key government personnel, the minister being here today is a testament to the fact that the government of Ireland is very much pro business and very much pro IFSC and the insurance industry.
If I might sound a note of caution, I think it is very important that within the government department the resources necessary to maintain this growth, both from a regulatory point and marketing point of view, are maintained. While we have not had a problem on the regulatory side, we had a problem on the marketing side which has now been addressed.
In terms of talking shops, the IFSC insurance group, acts as a forum for talking about ideas, looking at issues and basically responding to new products and ideas that are coming out. It is important that talking shop is used to its best advantage to develop business. I think to date it has worked pretty well, but we are competing against domiciles that can act much faster than we can. We do recognise the constraints of EU regulation and the fact that Emily regulates for the whole of the EU, whereas Bermuda is a single country.
Lee Coppack: Thank you, Eamon. Can I ask you, Minister, what your reaction is to all these comments? How do people perceive the IFSC? And do we want to call it the IFSC because that is a better marketing description or do we want to call it Dublin?
Noel Treacy: Well, let us call it both maybe. We are very proud of the success of the IFSC. You know, a lot of people put down the success of the IFSC to the taxation regime. That is only just one element. I think people forget that. There are a number of other elements: the quality of life, the quality of people, the good telecommunications system, all of these.
Just to address some of the problems that have been raised, we accept fully, due to the economic growth in this country over the past number of years, there is certainly a problem in the skills area. In the past year and a half 45,000 people have returned to work in this country; 45,000 Irish people have returned to work here due to opportunities in this country in the corporate sector, financial and many sectors. We have, as a government, addressed the situation.
Not only do we want to bring more of our people back, more experienced people with a lot of expertise across the world. I straddle two departments, the Department of Education and Science and the Department of Enterprise, Trade and Employment. With my two ministers, Ms Harney, who is the deputy prime minister of the country and Mr Martin who is the minister of education and science, we work in collaboration and co-operation with the third level institutions and with industry itself, and I use industry in the broader context, to put together a structure and a system, whereby we are taking out of the third level institution, year by year, graduates to fill the vacuum that is there and respond to the opportunities that are being created.
When you look at the taxation situation, our position in Ireland as a government, is that we create a financial environment which will sustain our economic growth, based on what we believe is the taxation regime applicable to that growth and required for that growth. As a small nation, neither do we have the resources nor use the resources, to operate on the basis of state aids, unlike other countries. Our taxation regime is very clear. It is an incentive to operate, and it is agreed now with Europe what the taxation situation pertaining to the immediate future is. Obviously, there will probably be changes some time in the future.Dermot has raised the point about personal taxation. Over the last number of years, we have had a clear government commitment consistent to reducing taxation on an annual basis. We have reduced our personal taxation rates from a very high rate, about five or six years ago, down to a reasonably moderate rate, and we are absolutely committed in each budget to reducing personal taxation on a progressive basis. We also did it in the corporate sector and last year we had a dramatic reduction on corporate tax. This is on the domestic side, we are talking about this time. That has had a major boost for Irish business. It has helped to create problems on the skills side, so there is obviously competition there.
Going back to the immediate question that you asked, obviously the IFSC is a flagship in Ireland and has been an ingenious creation. Perhaps to market it properly, we will have to use a macro-strong Dublin name. Let it be Dublin International Financial Services Centre, DIFSC or whatever, I think it is important from the capital city point of view, and to make our position in the world clear from the marketing point of view, that perhaps we have to put a strong emphasis on Dublin.We are delighted that David has been appointed and we are very proud of the IDA, and we are very confident that David and his team will certainly give the impetus to Dublin's international financial services that is required to penetrate the market. We are very proud of the people that are here. People around this table that have invested and created their systems here - very outstanding companies, and there are many more that will come in, we are confident, over this year and perhaps into the next few. We think 1999 will be a good year.
Are there any specific questions? Seriously! I have brought some of my best people with me and they will help me out. Emily in particular. We are very proud of her - she does a great job! I picked up a point that you made, Eamon, that as the global centre is expanding, we may need to have further expertise within the public sector, within the departmental sector in Ireland to respond to your requirements. I can tell you today that we are addressing that situation. At government level, we will over the next year expect to pull further professionals into the system to assist Emily in doing the job that she is doing, so that there can be a quicker response at a very high professional level within the department to supplying and servicing the needs of the industry.
Eamon O'Brien: I certainly welcome that. Rumour has it that when the UK pulls in all the financial services regulation under the one authority it has been very problematic in terms of this ongoing management. There is talk of a single financial services authority here under the auspices of the central bank, I think it is a case of when, not if.
Noel Treacy: There would probably be a single financial regulator, not necessarily under the auspices of the central bank but there will be a strong, stand alone, independent operation. We will probably synchronise some of the best talent in a number of agencies into this new system.
Eamon O'Brien: The most important thing is that the talent that we have in our sector remains within that sector. I think that what happened in the UK was that talent was lost because people moved in and people moved out. It doesn't matter where people are positioned as long as the people that are there now are retained effectively and the reputation we have build up is maintained.
Reinhard Elers: The point you made about marketing: is it just the IFSC alone or Dublin or Ireland? I would say from our international clients, if you take the viewpoint from Japan or from South Africa, they do not make the distinction between IFSC, Dublin, Ireland. It is all the same. Even from a German standpoint, it is Ireland or Dublin.
Noel Treacy: That is why I felt that we should use both.
Reinhard Elers: The same thing is true of the tax situation with the general corporate tax gradually becoming more in line with the favourable IFSC rates. When that distinction is no longer there, more companies will be inclined to take advantage of the overall situation, so regulation comes into an even more important role. So far the IDA and the agencies are doing a lot to ensure that only quality companies are applying for domicile in Ireland, which they use concurrently with IFSC right now. If the benefits are available to everybody, we have to make sure that at the same time we maintain the same quality of companies which use the domicile, because any reputation can be spoilt very easily by one or two wrong names. I would very much encourage that the department is properly staffed to make sure that reputation is being maintained.
The other point is how will Dublin develop in the future? The original starting base was basically captive management, and captive management is slightly different from the normal reinsurance like QBE or like we are doing or Cologne Re. Something which I see a big chance to improve is that so far it has been very much more administrative or back office centre. The question is: which direction should the Dublin domicile develop? Should it focus on operations which employ a large number of people at junior skill level or should we also try to attract decision makers? Companies are coming in here who have got the right direction. The idea of having the clearer co-operation of the joint forum where all companies are involved and the contacts between these companies are being improved ultimately helps the domicile. I think that quantum leap is still in process but it has to be supported to be maintained and actually go to the next level.
Noel Treacy: On the marketing side, you know, Dublin, Ireland, it doesn't matter that much. I think we should be putting the emphasis to a certain degree on Dublin. We are very proud of our systems and our structures. They are very clear and pretty simple and transparent and we are very responsive and pro business. We do respond to the needs of the various companies as quickly as possible. We want to maintain the highest quality products, the highest quality companies in that centre and we want it to be a centre of excellence, a shining beacon into national business services.
In our negotiations and discussions, in the screening that we do between the IDA, between the department and the other government services, we have a very co-ordinated macro-approach to international development in Ireland. We are not just dependent on one particular agency. We have a lot of collaboration that makes it pretty certain that we are right most of the time. The IDA have been very good at making decisions. I think that it has been proven conclusively that not only have their decisions been very good, but the ones they have rejected have proven to be very disastrous elsewhere, so it proves how much on the ball they are. You can be certain that we want to maintain that. We want decision-makers in that centre, highly powerful business people who can make decisions for their companies, for the investors and for the world at large.
Dermot O'Donohoe: I think it is happening. Whereas, three or four years ago you might have had a question about Dublin, you know, marginal tax driven, whatever it was. Now, I think that the Dublin insurance market has gained a critical mass. Most of the major brokers are here, a lot of the large, leading casualty and property insurers are here. Clients now come here. One-third of our clients are US, and out of those, I would say, two-thirds stop in once a year to see us and a couple of our competitors whom I will not mention, but it has gained that critical mass. There is a market here now. It is going to sustain itself beyond the 10% tax.
Eamon O'Brien: If you look at Bermuda, when it was set up, it was very advantageous from the tax point of view over the US. Gradually, the tax benefits of that domicile were eroded, but because it has raised itself as a centre of excellence, it has been maintained. Doubtless at some point, the tax benefits that we have to offer will be eroded by changes in tax legislation throughout the EU, and, indeed, in other countries. If you maintain that hope of a centre of excellence, you can overcome these taxation difficulties.
One of the things that Tillinghast brought out in its report was to make Dublin the Bermuda of Europe. There are several initiatives in Bermuda, that if we had been in a position to respond, we could have got quite a bit of business in there. We recognise that now. We have now put in place a person who is going to move that forward, and I agree with what Dermot said, but we do need to expand the critical mass all the time, because with success comes people who want a bit of that success and we want to keep them off.
Dermot O'Donohoe: I think there have got to be some limitations on what Dublin can do. Tax is certainly going to be part of it. As we struggle in the market with the competition, I am sure that every insurer finds the same thing - that they have to get closer to their clients and understand what their clients are doing better. They have to solve their client's problems and they need to physically start to gravitate towards those clients.
Ultimately, that will limit what we can do in Dublin. We may need to have people in other parts of the world, but our hub - where our decisions are being made and where our main underwriting operations are going to be - will be Dublin, but the marketplace will impose limitations on exactly what we can do here, because we need our people in France, Germany, Spain and Italy, on the ground with the clients. That will mean that at some point we may consider offices in these areas. That, of course, has tax and operational implications. They are the sort of things that might limit us going from maybe 50 people to 100 here. We might go from 50 to 100, but the other 50 might be scattered throughout Europe.
David Smith: We are pushing Dublin as the place where the management control, and the decisions are made and the underwriting done. Yes, the marketing trips will have to happen, and in some big markets, you will have branch offices like in most companies in the IFSC would have an office in London for marketing purposes. But at all times we would like to see Dublin as the head office location, that when underwriting decisions have to be made, claims are being paid or board meetings held, where the balance sheet resides, all that activity will be happening in Dublin.
Lee Coppack: I was interested in Ian's point, about getting Dublin working as a market with business in between the companies. Can you enlarge on that a bit, Ian?
Ian Clancy: I think we are just getting to that stage now in terms of having the critical mass that we have talked about. With the profile of companies that we now have coming in and the experience that we have within those companies, I see it happening. Clearly, it is down to the industry to start interacting with people. What we would like to see Dublin become the one stop shop in Europe for insurance so that when people come, in addition to going to see the Xls, they will also see the brokers. To whatever extent we can bring the resources that Dermot is talking about in the international field and locate it into Dublin, that is to our benefit, so it truly becomes the one stop shop for all the services and all the insurance needs that these Fortune 500 companies have.
David Smith: Another advantage that Dublin will have is that it is not just an insurance centre. Insurance is only about 25% to 30% of the IFSC. The rest of the IFSC is a very, very well developed fund centre but also, very importantly for us, a very well developed treasury, banking and capital market centre. On the ART and the alternative risk financing side, it will be another key challenge to us to tie in the insurance and the capital markets into what is happening in Dublin, to make sure that companies are talking about their insurance, but also, hopefully talking about their financing needs or . . .
Eamon O'Brien: The conference on 15/16 March, Merging insurance and financial risks, the next five years, is really the first major conference we have had in Dublin in five years. I think that is indicative of the way in which this market is moving, and the fact that the insurance industry is responding and bringing the number of traders together, insurance and financial people, much as Ian has said in terms of the one stop shop. Both our respective companies have positioned ourselves to not only manage captive insurance but also agency treasury and finance companies. We are putting ourselves out there as services managers, not just captive managers. More and more, we want to be able to demonstrate to the wider world that Dublin has the expertise to basically do whatever they need done. If we can do that on an efficient basis, there is no reason why they shouldn't locate here.
Lee Coppack: Steve, do you find any interaction between what you are doing and what the captives are doing, for instance?
Stephen Higginson: Very little in truth. But, if I may digress slightly, you were talking, Minister, about Irish people coming back - 45,000 or so in the last year and a half. We have found a lot of people who have joined us who may be Dutch, French, German, but their girlfriends or their wives are all Irish and they all wanted to come back. They themselves may not be Irish, but family was one of the pulling points, so it has allowed us to access people which might otherwise have been very difficult.
Dublin - and Ireland - has marketed itself very effectively. Yes, there are, as Dermot mentioned, problems or at least perceived problems of personal taxation, but these are out-weighed in many instances by the buzz surrounding Dublin and Ireland at the moment. Everybody comes here for whatever the reason. If you go back a few years, and say: “If somebody was visiting from South Africa, where would they go in Europe?” They would go to London, Paris, maybe they would go to Munich or Cologne, and then suddenly Hannover became very much part of the circuit because of Hannover Re.
Our objective in simple terms is to make Dublin part of that circuit in our area of business. Certainly. I think, intangible though it may be, there is the benefit of the captive managers, of the risk financing side, of all the other areas of the IFSC. It is all, as the upcoming conference is suggesting, increasingly closely knit, and although we do not play upon it specifically, we see, probably intangible, rewards going forward.
Dermot O'Donohoe: It is funny, actually, you talk about the tax and look at Dublin as an overall package and look at the quality of life that we have here. For example, one area that stands out is the education system, but not just that, even the cost of education in Ireland. The amount of money that they pay there to here is very substantially lower, particularly for people from the UK, if they are sending their children to private school. The quality of education - we had an Australian chap up to Dublin and he cannot get over it. Suddenly, he has recognised that it is not just a pay cheque; there is kind of an overall sort of feeling about it.
Steve Higginson: The education factor has been a significant issue as far as our people are concerned. A good point.
Noel Treacy: We have a very strong ethos historically to education. In 1933, there was a huge decision taken on education in Ireland and again in 1966, the last few years again and every decade we took some positive decisions. There were particular periods in history where we took very, very big decisions so there is a total consi