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Captive Credibility
As the Irish captive market continues to flourish, Oisin Ryan explains how to go about setting up a captive in Dublin
Like all the leading international financial services centres, the Dublin market has its own set of rules and regulations and therefore local knowledge is the first thing any prospective captive owner should seek out. Following a period of over 15 years of development as a captive domicile, Dublin now has an extensive network of captive management service providers, ranging from the large broker associated firms to small specialist managers. Any prospective captive owner should contact a number of these captive management firms in order to ascertain what each particular client considers to be the best service at the right price.
Clients considering establishing a captive in Ireland should have an initial meeting with their preferred captive manager and the Irish Financial Services Regulatory Authority (IFSRA), in order to ensure that the client is fully aware of the local regulatory environment. Undertaking a captive feasibility study should be the next step in the captive establishment process. Most captive management companies provide such studies as part of their service package. Any fees payable in respect of this service is money well spent, as a good feasibility study will provide the client with a sound basis to make a decision on whether or not to establish a Dublin domiciled captive.
Once a decision has been made to go ahead with establishment, the process outlined below must be followed. The process varies for reinsurance and direct writing insurance captives, so they are dealt with separately where applicable. Establishing a direct writing life insurance operation is not dealt with here, but information is available on the IFSRA website (www.ifsra.ie).
Reinsurance
Form 1 (Notice by a Reinsurance Company) must be completed and submitted to IFSRA in line with the Insurance Act, 2000. Details of the parent company, initial share capital, lines of business to be written and the principal officers are the focus of the Form 1, which was drafted with authorisation in mind. However, recognising that formal regulation is imminent and in order to expedite the application, it is advisable to submit a business plan for the captive with the application and this should include forecasted results for the first five years of operation, as well as additional background information.
Companies should refer to the definition of captive as contained in the forthcoming Reinsurance Directive
Direct
A business plan must be submitted with an application for a direct writing licence, in line with the guidelines set out by IFSRA in their ‘Outline Requirements for the Establishment of a Non-Life Insurance Head Office’, which is available on the IFSRA website. The business plan should focus on substance, corporate governance, nature of the business, risk and risk mitigants. Specific issues such as notification of the countries within the EU, into which insurance is to be written, must also be covered.
Background checks will be conducted on the proposed directors and general managers of both reinsurance and direct writers, which involves contacting the home regulator if any of the individuals are foreign nationals. This is to ensure that all principle officers fulfil the ‘fit and proper’ requirement. IFSRA has published a Guideline on Fitness and Probity CP11.
Reinsurance
Reinsurance captives only require a general manager if third party business is being written. A management and services agreement with a captive manager is sufficient for pure captives.
Direct
Direct writers must satisfy corporate governance and substance requirements demonstrating control and management of core insurance skills and internal control environment. A general manager, finance director and compliance officer are required at a minimum.
Again, a service agreement with a captive management company can provide all additional services.
No application fee applies to applications for reinsurance captives or non-life direct writers.
Reinsurance
The minimum amounts required for a reinsurance captive are €1 million for a pure captive and €3 million for captives with third party exposures.
Direct
Capitalisation requirements for direct writing captives vary depending on the volume of business and the classes to be written, in line with the Solvency 1 Directive 2002. However, a minimum guarantee fund of €2 million is required and this rises to €3 million if writing any of classes 10 to 15.
Reinsurance
In advance of the imminent introduction of the EU Reinsurance Directive, which is expected to become law in Ireland towards the end of 2006, IFSRA are looking to ensure that start up companies are compliant prior to granting authorisation.
Direct
Direct writing captives must comply with the European Communities (Non-Life Insurance) Framework Regulations, 1994 (S.I. No. 359 of 1994) and a range of other EU and Irish legislation.
Reinsurance
6 - 10 weeks
Direct
Up to 6 months
Although some prospective captive owners may look at this regulatory burden as a hindrance, it is worth noting that IFSRA have been very proactive in ensuring that the captive market in Dublin operates in an environment that protects the interests of captive owners and third parties alike. This approach to regulation reinforces the image of Ireland as a low tax jurisdiction, albeit one with a regulatory infrastructure comparable to any of the major EU economies. This unique combination differentiates Ireland and adds considerable credibility to the jurisdiction, which can often be a crucial factor in terms of the view that the home regulator/tax authority takes on a captive arrangement.
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