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Banking on Success
Norman Fitzgerald and Nessa O'Riordan provide an insight into the support offered by Irish banks to insurance companies locating in Dublin
The Irish international financial services story is a highly successful one. Since the establishment of Dublin’s International Financial Services Centre (IFSC) in 1987 by the Irish State, the international financial services industry has played a leading role in the Irish economy that continues to strengthen and develop. Dublin is now firmly established as a world class international location for financial services. The insurance industry is a major contributor to this success, with gross premium written estimated at over 11 billion Euro. An increasingly popular captive location, over 200 captive insurance companies are currently located here. Household names that have established captives include McDonalds, Heinz, BMW and IBM.
There are numerous reasons for Ireland’s attractiveness as a location for international financial services companies.
These include: • A competitive corporation tax rate of 12.5%;
• Ireland is the only English speaking common law jurisdiction in the Euro zone;
• An extensive tax treaty network;
• EU and OECD approval;
• A sophisticated pro-business regulatory environment;
• Proactive and all-party political support;
• Ireland enjoys the full benefits of the EU Third Non-Life Directive (92/49/EEC) which facilitates
direct writing by a qualifying insurance undertaking on a pan European basis.
These benefits are supported by a strong economy, a young, educated workforce, a modern infrastructure
and world class professional services.
Choosing the appropriate professional service providers can help minimise costs and streamline operations. Many international insurance companies based in Dublin operate with a reasonably lean local presence (with many utilising the services of a third party administrator) and have a strong global outlook. It is essential that local service providers can provide efficient, reliable support, allowing the insurance company to leverage off this local infrastructure, expertise and network of industry contacts. The local service provider must also appreciate the global challenges facing their client and be able to deliver the necessary infrastructure and advice to support them. Local expertise in Dublin has flourished thanks to the opportunities and challenges presented by the ever developing international insurance industry. Irish bankers, solicitors, third party administrators, accountants and actuaries, to name but a few, have developed an extensive understanding of the specific requirements of insurance, reinsurance and captive operations, their key industry features and challenges.
In establishing local banking arrangements an insurance company will typically require a range of accounts in various currencies to suit the different business purposes of the company’s cash flows and markets served. The company will usually have at least one fixed corporate deposit account where its minimum capitalisation and/or surplus funds are deposited. These accounts can earn more favourable deposit rates than demand deposit accounts and have a range of fixed terms, depending on the client’s needs. An insurance company will frequently use a number of interest bearing ‘call’ deposit accounts, where funds are available on demand. These accounts combine a favourable interest rate with flexibility. For example, premiums collected are typically placed on call deposit. Depending on the currency exposure and policy of the insurance company, fixed and call deposits are often operated in a range of currencies. Thus the company avoids the cost and foreign exchange risk associated with translating funds into Euro and can better match the currency of collections and payments. Insurance companies will generally operate current accounts from which business expenses and claims are paid. These current accounts are typically funded from the call deposits when expenses are anticipated, thereby maximising interest earned.
The insurer’s banking provider should offer advice as to the best account structure for the specific cash flow profile of the company. They should also advise on the most efficient method of making the company’s payments. For example, AIB’s iBusiness Banking (iBB) allows companies to make both domestic and international payments from their own desktops. It also allows them to submit bulk payments files, such as creditor payments or salaries, for automatic processing. These services ensure minimum manual intervention and minimum cost.
A lean local presence can cause problems when implementing appropriate segregation of duties within the company, particularly in relation to payment authorisation. As a result, it is important that the insurer’s bank accounts can be accessed from a wide range of geographic locations, for both monitoring and payment authorisation purposes. The iBB system is internet based and can therefore provide the solution. The system also provides authorised users with instant access to up to date account information, across a range of account types, from any global location.
Other services that a banking partner can offer include foreign exchange (encompassing limits for forward and spot trading). Ireland’s open economy has ensured our banks have an extensive, well developed expertise in currency trading. AIB also provide specialist credit facilities to many of our insurance customers. For instance, we provide many captive (re)insurers with facilities to cover fronting arrangements. If the captive has surplus cash it may choose to cash-back these facilities, thus reducing the cost. Another example is facilities extended to cross border life assurance companies for their regular asset reallocations. AIB provide standby credit facilities to many of these companies to bridge the funding gap between when they pay for new investments and when they receive cash for investments liquidated. Other products offered, such as AIB IT, have also helped our insurance customers minimise the cash spent on IT equipment and efficiently manage their fixed assets. A package of services including fund administration, fund accounting, transfer agency, global custody and trustee services is also available through AIB/BNY, a joint venture company of Allied Irish Banks and The Bank New York, based in the IFSC.
Often individuals will relocate here to Ireland in order to establish and/or operate the new company. The company’s local banker can refer these individuals to the appropriate local branch and provide assistance in the personal account opening procedure. For example, at AIB the corporate relationship team would very often deal directly with the human resources department of the insurance company and streamline the personal account opening procedure by co-ordinating the information requirements of the branch.
While some generalisations in banking structure can be drawn for companies operating in the insurance industry, the specific profile of each company needs to be considered in order to provide a tailored banking solution that offers an ideal fit. AIB achieve this by providing a dedicated relationship manager to each corporate customer. The relationship manager has sectoral expertise – for example, our corporate banking division has a team which specifically deals with international insurance companies. This ensures that each company’s relationship manager understands the industry features, challenges and opportunities of their customers. On the international insurance relationship team, we have developed an extensive network of contacts with other local service providers to the industry, such as third party administrators and solicitors, and deal directly with them on a daily basis. This has been invaluable to our clients in ensuring a cohesive start up process and assisting in the ongoing smooth operation of their company. The relationship manager is responsible for structuring a full banking package, for putting any required credit facilities in place, for reviewing the products and services provided for their ongoing suitability, and for performing regular service reviews to ensure that support provided to customers is of a world class standard. The relationship model at AIB is a true ‘one-stop shop’ and has been a key feature in ensuring that it wins over 60% of all inward investment projects to Ireland.
Ireland has a banking tradition that is over 200 years old. Its banking system is well developed and highly sophisticated, with extensive experience in working with overseas companies investing in Ireland. The banking sector is licensed and regulated by the Irish Financial Services Regulatory Authority (IFSRA). The emphasis of IFSRA has been to put customer issues at the heart of financial services regulations, which has led to a well regulated and competitive banking environment. Irish banks work closely with the Industrial Development Authority (IDA) and other organisations and groups to support and encourage the development of the international financial services industry in Ireland. Such close co-operation has ensured that the banking services provided are of a world class standard and the sector fully supports all international companies locating here.
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“There are numerous reasons for Ireland’s attractiveness as a location for international financial services companies. ” |
