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The Reinsurance Story
Ciara Regan reports on the Reinscurance sector and explains the appeal of working out of Dublin
The first reinsurance activities were established at the IFSC in 1989. Today, according to the Companies Registration Office, there are 238 reinsurance companies registered for business in Ireland - an impressive increase over a 15 year period - and in total more than 1500 overseas companies operating here. During the intervening years, Dublin has established itself as centre of excellence with a highly skilled and motivated workforce providing imaginative and innovative solutions to some of the world’s largest insurance and reinsurance companies.
In terms of the first reinsurance activities established, these were largely captive reinsurance companies. Today, however, the picture is quite different with more and more reinsurance companies doing third party business throughout the EU. According to 2003 DIMA figures, the gross premium written by Irish reinsurance companies was 12 billion Euro, and assets under management amounted to 42.4 billion Euro.
The Dublin International Insurance and Management Association (DIMA), established in 1990, is the central body representing the international captive management, non-life insurance and life and non-life reinsurance operations. On the industry’s behalf, DIMA makes submissions to the government and other bodies on issues affecting our industry and has been vital in ensuring that Dublin retains its first class reputation and its attractiveness in terms of an ‘onshore’ domicile within the EU.
Reputation. Dublin is recognised as an important and highly regarded domicile for reinsurance and international insurance operations. Additionally, traditional life and non-life insurance has been a feature of the Irish landscape for more than 150 years so Ireland is a long established market in this sense.
Workforce. 40% of the Irish population is under the age of 25 and the Irish education system is one of the best in the world. The combination of the two means a dynamic, highly educated and vibrant workforce with the skills necessary to service a specialist industry such as reinsurance.
OECD & EU membership. Ireland has full membership of the OECD and EU. Through the Third and Non-Life (Framework) Directives, Ireland can write reinsurance business in all of the EU countries on a direct basis and into certain non-EU markets on a non-admitted basis.
Tax rates. Corporation tax rates in Ireland are 12.5% for all companies (that is, those selling domestic business and international business), thus providing a very favourable tax environment to companies located here. Tax is paid at the rate stated on ‘profits’ and no further taxes apply, such as withholding taxes, premium taxes or levies as apply in other jurisdictions. Ireland also has an extensive tax treaty network in place (with 44 countries to date) to ensure the most efficient tax regime is in place for businesses located here. From the point of view of personal taxation, Ireland offers an attractive tax environment for expatriates.
Business environment. The business environment is friendly and knowledgeable with easy access to internationally experienced legal, actuarial and accountancy firms. For smaller businesses, activities such as IT, administration and pricing can be readily outsourced.
Regulatory regime. Irish regulators work closely with the industry through DIMA and its various sub-committees to ensure that a reasonable approach is taken with regard to regulating the industry. In fact, with the recent EU Reinsurance Directive due to come into force shortly, face to face meetings have been conducted and the Irish Financial Services Regulatory Authority (IFSRA) is currently soliciting input from the reinsurance industry prior to its implementation into Irish law. Generally, foreign companies investing in Ireland have found the regulatory regime responsive and pro-business.
Language. Ireland’s primary language is English and there is a large source of foreign language skills available, as Dublin is centre point for many pan European call centres.
Telecommunication systems. The Irish government has spent in excess of 4.5 billion Euro in recent years developing digital communications. Ireland’s telecommunications system is considered to be one of the best in Europe with full fibre optic services and unlimited broadband connectivity to the US and Europe. Further investments have been made with the rollout of broadband DSL to regional locations and according to a recent OECD study, Ireland had the second lowest international leased line costs.
Location. Dublin is essentially a springboard to Europe. The EU has 25% of the world’s insurance premiums and Dublin is well connected to other major reinsurance centres such as London, Munich, Cologne and Zurich.
Political. The financial services industry is vitally important to the Irish economy. In particular, the Irish Development Authority works with all foreign companies based here to ensure that Ireland continues to meet their needs and the necessary infrastructure is put in place to allow them to operate efficiently and effectively.
Great place to live. According to a recent study carried out by the Economist Intelligence Unit, Ireland has the highest quality of life in the world, ahead of the US, Britain and Switzerland. The study examined quality of life indices in 111 countries and stated that Ireland was the best place to live in the world because it has low unemployment (4.5% in 2004), political freedom and stable family life. From a personal viewpoint, I can vouch for what an energetic city Dublin is, with superb restaurants, wonderful cultural events, people and social life.
Sun Life Assurance Company of Canada (Sun Life) has actually had an insurance branch in Ireland since 1926 although it has been closed to new business for a number of years. In 1998, Sun Life set up its IT global support operations in Waterford, Ireland. In 2001, Sun Life Reinsurance (Ireland) Limited was established for all the reasons outlined earlier but, in particular, because of the regulatory, capital and tax advantages of having a reinsurance company in Ireland. This operation reinsures Sun Life’s own US sourced business. Following its success, Sun Life applied for a reinsurance branch operating licence and received this in December 2003. The purpose of the reinsurance branch is to write third party business in the EU, while enjoying the benefit of an AA+ S&P rating from the parent company. To date, the business model has worked excellently and we have received huge support from others involved in the industry and the regulatory and development bodies. The Irish branch of Sun Life Assurance Company of Canada is a retrocession operation which means its business is to reinsure the reinsurance companies. For more information about what we do and who we are, please visit our website at www.sunlife.ie.
With such a successful ‘formula’ in place, the question always arises as to what threats to this success are teetering on the horizon. Below, I list some of what I consider are the potential issues to be conscious of and proactive about.
EU Reinsurance Directive. The main impact of this Directive is the implementation of an EU minimum solvency requirement which will result in statutory solvency requirements being at a much higher level than the current minimum of 635,000 Euro. However, the threat that is posed is how this Directive is interpreted into Irish legislation in terms of solvency, reserves and asset admissibility and the threat of more onerous regulation at the local level. IFSRA is also looking to introduce a ‘Fitness & Probity’ regime for directors, thus increasing the level of regulatory oversight. It will be important for reinsurance companies, through DIMA, to work with IFSRA to ensure that Ireland continues to be a positive regulatory environment in which to work.
EU regulation. While the Irish are not shy about speaking up in Europe (‘the gift of the gab’), Ireland is but one of a number of voices in the EU with probably the UK, Germany and France being the strongest. With further regulation due to be introduced in the future, such as Solvency II, Ireland must be proactive about its needs being heard and, more importantly, being heeded. The financial services industry is vital to Ireland’s economy but may be threatened by larger countries and their agendas.
Finite reinsurance & reputation. While Eliot Spitzer has highlighted shortfalls in reinsurance and accounting practice, Ireland has thus far emerged from the various scandals relatively unscathed. However, with substantial amounts of business being written into Ireland, it will only take one large scandal to damage Ireland’s reputation. IFSRA has always been aware of this and therefore carries out appropriate due diligence before allowing companies to operate and is clear that it will not tolerate poor business practices. I believe, however, that it is important that the industry as a whole is mindful of its responsibility to Ireland’s reputation and operates in a conscious and prudent way.
Cost of living & cost for employers. Ireland is no longer a cheap place to live. The average house price in Dublin is now in the region of 330,000 Euro and that is not for a four bed semi-detached in Dublin 4, but rather a much more modest establishment in the suburbs. Food and drink are both quite expensive relative to our European counterparts. For employers, the cost base of an operation is important and with high rentals and salaries, this is a threat for Ireland, in particular given the recent Eastern European entrants into the EU and their very low cost base.
In the future, it will be important for Ireland to differentiate itself on quality products and services being delivered at the right price and based on proper and prudent business conduct, in order to stave off competition from other regions. It will be equally important for Ireland to continuously question and look for new opportunities and markets in order to survive in the long term. So, to finish with some clichés, Ireland has ‘made hay while the sun has shone’ but with continuous competition from other geographical regions, we most certainly cannot ‘rest on our laurels’.
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