A New Dawn for Dublin

The implementation of the Reinsurance Directive, and its passage into Irish legislation, will prove one of the biggest forces moulding the future shape of the market.

Amidst the uncertainty of the ‘no’ votes to the European Constitution cast by France and the Netherlands, the Reinsurance Directive was quietly voted through by Members of the European Parliament in early June. In reinsurance terms, this must rank as one of the biggest events for the industry. For the first time, reinsurers based in Europe will all be regulated, to a common standard, with common goals.

The Directive was shepherded in by UK MEP Peter Skinner, who acted as the ‘rapporteur’ for the process. In all, it took just over a year to go from the first published version of the Reinsurance Directive to the final form as passed by the Parliament. As a ‘fast track’ directive, it was always destined to pass through the system with a certain alacrity, but the final speed was almost unprecedented, particularly with the alterations to its shape, and the different attitudes towards risk from member states which have now been successfully bridged.

For Ireland, the Reinsurance Directive is of particular importance. Since the International Financial Services Centre (IFSC) was founded, Dublin has gone from zero to fourth largest reinsurance centre in the world. Many different types of reinsurance are transacted by Dublin-based reinsurers, and the city has become a location for life reinsurance and finite business in particular. As the market grew, the Irish regulator, now the Irish Financial Services Regulatory Authority (IFSRA), developed a set of standards for directors of reinsurance companies. That regulatory regime will step up with the new Directive, which is set to have an early ‘transposition’ into Irish legislation.

Dublin-based reinsurers understandably took an active interest in the course of the Directive during its various metamorphoses before it reached its final form. Working closely with Ireland’s officials to the European Commission and government representatives, the reinsurers supported the moves towards prudent regulation embodied within the spirit and text of the document. At the same time, areas such as life reinsurance - where the original proposals for its regulation betrayed a degree of misapprehension which could have led to a flight of business from Europe’s shores - were scrutinised and a more realistic regime proposed.

Ireland, as one of the three net ‘exporters’ of reinsurance in the EU, had a particularly strong concern that the directive fulfilled its stated aim of creating a level playing field across Europe, facilitating competition and ultimately benefiting the cedant. Other member states with domestic insurance industries which rely on alien reinsurers obviously had concerns that their domestic policyholders were protected. To this end, up until now certain countries have required collateral to be posted by non-domestic reinsurers. In the final version of the Directive, such countries are required to dismantle their collateralisation structure three years after the directive is published in the ‘Official Journal’ - a year after the final date for transposition in each member state.

And, of course, there is the issue of finite reinsurance. Up until recently this had been a growing proportion of the Dublin reinsurance sector, estimated to be worth about 2 billion Euro per annum in premiums. Both finite reinsurance and special purpose vehicles received particular treatment in the directive, allowing home state regulators the ability to set their own standards for the regulation of finite business. There is also the requirement that cedants purchasing these products inform their home state regulator of their involvement with finite business and the way in which they propose to use it. While the next step in the finite market is unsure, home member states are looking at how they plan to implement the regulations.

Since 2004, the Dublin International Insurance & Management Association (DIMA) has been closely involved in the passage of the directive. The association is now involved in the next stage, the shape that legislation in Ireland is likely to take, and how it is likely to be implemented. With captives continuing to represent a significant proportion of the marketplace - Dublin remains one of the top ten captive domiciles in the world with more than 220 insurance and reinsurance captives operating in the city in 2004 - the definition of captives within the directive will prove an influencing factor on the future shape of the market.

The captive sector was the first international re/insurance sector to establish in Dublin, with the first captive incorporated in 1989. Dublin maintains its original attraction of a competitive tax environment - Ireland has an across-the-board corporation tax rate of 12.5% - but over recent years has been able to prove its credible business environment and strong infrastructure. From day one, Ireland offered captives, both direct writing and reinsurance, the option to write business across Europe. In the late 1980s and 1990s, Dublin was unique in this offering; now Gibraltar and more recently Malta have set themselves up as competing domiciles. Although both territories are able to extend the passporting options in the same way as Ireland, there is still a ‘tried and tested’ environment in Dublin with strong support industries and many years of experience within the captive management companies and professional services firms.

The implementation of the Reinsurance Directive, and its passage into Irish legislation, will prove one of the biggest forces moulding the future shape of the market. Dublin-based reinsurers are seizing the Brussels bull by the horns and actively encouraging the timely implementation in Ireland. DIMA is actively working with the market on the steps towards implementation, and encouraging the adoption of sound corporate procedures and processes to build a healthy and thriving market in the future.

Sarah Goddard is Chief Executive Officer of DIMA.

“Ireland has an across-the-board corporation tax rate of 12.5% - but over recent years has been able to prove its credible business environment and strong infrastructure.”