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Looking to the Future
Dublin as a financial centre has come through its infancy and is now a well respected centre for financial services activities in Europe and worldwide. But there's more to come.
Since the formation of the International Financial Services Centre (IFSC) in 1987, the financial sector in Ireland has grown from a small local based sector into a leading world location in the international financial services industry. From the outset in 1987, the Centre, which had full EU, government, and professional backing, enjoyed the full support of the major Irish financial institutions. The main Irish banks accepted that they would benefit from the growth of international financial businesses in Dublin. There was a full understanding that an open market would expand and benefit all that were competitive.
At that time, Ireland’s inward investment programme, including the preferential rate of corporate tax (10%) then exclusively available, under Irish tax law, to manufacturing and some service activities such as software and data processing, was extended to include international financial services. The EU, recognising Ireland’s unique demographic profile and consistently high unemployment rate (18%), agreed to this proposal on the basis that the IFSC would be an employment generating programme in an urban renewal area. In a natural extension of its role of attracting inward investment, IDA Ireland was appointed as the government’s marketing agency for the IFSC.
The EU initially approved the 10% corporation tax rate until the year 2000 and later extended it to December 31, 2005. In July 1998 the Irish government reached an historic agreement with the EU to introduce a general 12.5% corporate tax rate for all trading activities to commence from January 1, 2003.
A few leading international companies and institutions were persuaded at an early stage of the benefits of the Centre and what it had to offer. They undertook a range of banking, insurance, treasury and funds activities, giving credibility to the IFSC and providing a reference for others to follow. Soon a momentum developed which saw a growing number of leading institutions become involved. On the insurance side, AIG and XL were among the first companies to establish operations in Dublin. In 1989, AIG set up an insurance management services firm offering captive management services and guidance on asset management and investment opportunities. At the same time they set up a second operation, engaged in the management of UCITS and non-UCITS funds domiciled in Ireland. The latter currently employs in excess of 100 people. In 1996, AIG added a regional technology centre at Blackrock, County Dublin, as part of the on-going development, localisation, implementation and technical support of corporate computer systems to AIG’s Western European offices. Today the centre employs over 100 people.
In 1990, XL Europe was established at the IFSC as XL Capital’s only office outside Bermuda. The operation spearheaded the drive to generate business from the European market and initially concentrated on providing excess liability insurance cover to many of the world’s largest corporations, quickly expanding to writing directors and officers’ liability, professional indemnity and employment practices liability. Today this business accounts for $250 million in gross written premium. XL recently established its European treasury operations at the IFSC and now manages the liquidity requirements of XL’s activities throughout Europe from Dublin.
Today the city is home to half the world’s top twenty insurance companies. Leading firms such as ACE, AWAC, Generali, The Hartford, Allianz, Canada Life, Hannover Re, Hansard, XL, AIG, Gen Re, Max Re, Marsh, Aon and Willis have all set up major operations in Dublin. Advantages of Dublin as a location for international insurance activities
A significant amount of Dublin’s appeal comes from Ireland’s status as a member of the EU, particularly with so many concerns being expressed globally about the utilisation of offshore jurisdictions and with a renewed focus on regulatory and financial compliance.
Dublin has numerous advantages which continue to make it a highly attractive location:
• Firstly, Ireland as a member of the EU has access to all EU countries on a direct writing basis using the third life and non-life (framework) directives.
• Ireland offers a highly competitive low corporate tax rate of 12.5%. This rate has been approved by the European Commission and falls within the OECD / EU Codes of Conduct on tax.
• Ireland has an extensive network of double taxation agreements, which provides favourable tax treatment on repatriation of profits back to the home country. The Ireland / USA Double Tax Treaty provides the ability to attain FET exemptions on US business ceded to an Irish company. This can lead to significant savings on high value deals.
• There are withholding tax exemptions on most interest and dividend payments back to the home country.
• Ireland allows for gross roll-up of investment income.
• The range and quality of service providers is world class. All the major accountancy firms have offices in the city. Dublin also has internationally experienced legal and actuarial firms, in addition to leading captive managers such as Aon, Marsh, AIG, Allianz and Willis, to name a few.
• Ireland has been exceptionally successful with, and welcoming of, inward investment. US government data show that, among European countries, Ireland has the highest rate of return on US investment. As a result, it has attracted a large share of investment into the EU, particularly in high growth sectors and financial services. This has helped the domicile develop world class capabilities in management and technical skills and nurture an exceptional flexibility, including an openness to change.
• The pro-business attitude of the regulatory authorities in Ireland is an important feature of the financial sector. The Irish Financial Services Regulatory Authority (IFSRA) has adopted an ‘open door’ policy in their willingness to meet project promoters and discuss issues directly with them.
• A high degree of participation from the existing financial services industry is also in strong evidence. Industry associations are directly involved in various policy review groups, which comprise industry practitioners and the relevant authorities.
• Ireland has proactive, consistent all-party political support for the development of the financial services industry. Because of the relatively small size of the country, government is open, accessible and responsive. Insurers operating in Dublin can market the fact that they are regulated under the terms of EU Directives and comply in all respects with ‘general good’ requirements which prevail in the EU. With the imminent introduction of Pan-EU regulations for reinsurance companies, this sector of the industry will also be able to look to Dublin as a location which offers fiscal and administrative benefits in a prudent yet efficient regulatory environment. The IDA sees this as a positive development which will maintain Ireland’s reputation as a blue chip domicile for international insurance and reinsurance, and will assist in attracting more major reinsurers to Dublin.
Among recent companies to be attracted to Dublin is Hartford Financial Services Group, one of the largest financial services and insurance companies in the US. Hartford Life Limited, a subsidiary of the Hartford , will employ approximately 130 people in Dublin. Recruitment is well on its way and the IDA sees this as a major win for Ireland. The company will manage its life assurance business in the UK from Dublin, choosing to locate in the domicile because of easy access to local and international markets and excellent skills availability.
In response to worldwide demand for a wide number of insurance coverages, Bermuda based AWAC also decided to set up an operation in Dublin. AWAC underwrites property and casualty insurance and reinsurance worldwide. The client base of the Dublin operation is larger EU companies seeking to add or replace capacity in the current hard market environment. AWAC’s strategy is to evolve into a leading, geographically-diverse multi-line insurer, providing a product and specialty base for moderate to high hazard risk exposures.
Recent success gives no assurance for the future and Ireland will depend on increasingly sophisticated knowledge based activities to facilitate and sustain high value and high income jobs.
It will be important for the future development of the insurance sector that Ireland continues to be recognised as a country where efficient and prudent regulation remains the rule. Ireland faces continual pressure from countries like Luxembourg, Gibraltar and Bermuda who lose no opportunity to sharpen their competitiveness.
It is equally important that the development of company law keeps pace with best practice internationally and that the transposition into Irish law of EU directives takes appropriate account of the specific needs of the international insurance sector. A ‘one-size-fits-all’ approach to legislation and regulation may not necessarily be in the best interest of the international sector.
Over the last fifteen years, Ireland has attracted many of the world’s leading insurance companies. These have been very successful. The deep understanding of the sectors which Ireland’s legislators and regulators have accumulated, coupled with a very strong cadre of experienced insurance managers, will ensure that the country will remain a location of choice for the world’s leading insurers.
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