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In 1987 the Irish Government decided
to include international financial services in the inward investment
programme. This decision resulted in the creation of the International
Financial Services Centre (IFSC) at Dublin's Custom House Docks.
Today there are almost 400 international
institutions directly operating from Dublin's IFSC with a further
350 managed entities. The IFSC now ranks as one of the leading locations
worldwide for international banking, investment funds, corporate
treasury and insurance activities. The list of IFSC institutions
reads like a "who's who" of top global financial institutions such
as Zurich Insurance, ACE, Merrill Lynch, XL, Deutsche Bank/Morgan
Grenfell, Societe Generale, Sumitomo Bank, ABN AMRO, NatWest, Chase
Manhattan, AIG, Citibank, IBM, BIL, Grand Metropolitan, etc. which
are engaged in a broad range of activities
With over 140 active captives Dublin
is an established European domicile that caters for both reinsurance
and direct writing captives. 47 of the captives are direct writers
utilising the European Union (EU) Freedom of Services directives
to cover risks in all EU countries from a single location. Major
corporates with captives in Dublin include BMW, Ericsson, Hewlett
Packard, McDonald's, Seagrams, Coca-Cola ,Volvo, H.J. Heinz and
Rand Merchant Bank.
In addition, specialist insurers, such
as ACE, Centre Re and XL, are using the IFSC to access European
markets. Dublin is estimated to be the 5th largest reinsure
of US primary insurance with over $450 million of reinsurance premiums
from the US alone. Total premiums written in 1996 in the non-life
sector were nearly $4 billion.
Location of Parents
The initial wave of captives to Dublin
came from Scandinavia, Germany, Belgium and Holland. However, the
single largest market is undoubtedly the United States and its importance
will continue.
Some of the captives have sister captives
in other jurisdictions with a Dublin captive for either direct writing,
EU risks or for a true worldwide insurance programme. Dublin captives
can reinsure back to other domiciles to utilise an existing built
up capital base.
Captive Activities
A profile of our captive business from
the U.S alone shows that it is usually direct writing, sponsored
by Fortune 250 companies with substantial insurable interests in
Europe, and who are focused on risk management and financing tools,
including the use of a captive.
In talking to risk managers, the single
most important factor motivating them to decide on a Dublin direct
writing on-shore captive is to avoid the carrier's fronting fees
in Europe. This is a logical conclusion of the recognised trend
towards unbundling of services, where activities such as underwriting,
claims handling, loss adjusting and HPR engineering advice can be
separately priced and sourced. As fronting fees can range from 5-7%,
this can be significant.
The corporates best placed to take
advantage of the IFSC are usually those with $2 million plus of
annual premiums in Europe. The captive programs usually commence
with property and liability covers in the early years and may extend
to environmental liability, credit insurance, third party business,
pan-European employee benefits, life and pensions provision.
Apart from covering European Union
risks, many other countries can be covered on a non-admitted basis,
including Australia, Hong Kong, Taiwan and Singapore. Corporations
can use Treasury Management structures to move premiums from subsidiaries
to the captive, bypassing the brokers.
Heinz - Profile of a captive
In 1993 H.J. Heinz Company chose Dublin
for its direct writing ability in Europe and Far Eastern countries
where Heinz has significant operations. The application was made
in September 1993, approved in December, and operations commenced
in February 1994. In reviewing the global risk management strategy
for the year to April 1995, and allowing for acquisitions and disposals,
savings numbering seven figures were achieved.
The Dublin captive allowed for elimination
of coverage gaps with one property policy worldwide and two primary
liabilities policies and the ability to comply with emerging tax
laws in US, UK, Netherlands and Canada.
IFSC Advantages
- EU and OECD membership and access
to all EU countries on a direct writing basic as well as many
other countries on a non-admitted basis.
- 10% Corporation Tax guaranteed until
2005 by the EU, the Irish Government then plan to introduce a
12.5% tax to the year 2025.
- No Withholding Taxes, premium taxes
or levies
- Extensive Tax Treaty Network (30
currently and growing)
- Proactive, Consistent All-Party
Political Support
- Efficient & Responsive Pro-Business
Regulatory Environment
- Availability of Young Qualified
Motivated Workforce
- Comprehensive Range of Holding Structures
- Wide Range of Potential Activities
- Long insurance tradition - over
150 years
- 5 year fund accounting for captives
- English speaking, common law jurisdiction
Captive Support Services
- Full range of captive managers
- Full range of international banking
facilities (Citibank, Chase, Bank of Bermuda etc)
- State of the Art Telecommunications
System
- World-class Professional Services
Providers (big 6 accountants, international law firms, actuarial
firms, etc)
- Strong yet accessible regulatory
process
10% Tax Approval Process
10% tax is not an automatic entitlement,
it is at the discretion of the Minister for Finance. Experience
shows that this process takes 4-6 weeks.
The application format follows typical
business plan headings, such as principals, proposed business, financial
projections for 3 years, and arrangements for management and control.
This 10% tax rate for approved companies
will run to the year 2005 when it will be replaced by a 12.5% tax
rate which will run to the year 2025.
Regulatory Approval
Direct writing insurers receive authorisation
from the Department of Enterprise, Trade & Employment. Insurance
companies throughout Europe are regulated in accordance with European-wide
standards of regulation designed to ensure a level playing field
in a competitive market. Applications typically take 4-6 months,
subject to the quality of the application documentation.
In line with most European countries
reinsurance is unregulated in Ireland.
Outlook for the IFSC
The outlook for Dublin will include
captives from new jurisdictions, existing captives forming new direct
writing or reinsurance captives (like Hertz and Heinz) and the broadening
of both the geographical and business scope of activities as the
captives become more established.
The growth will continue as the advantages
of a well regulated and beneficial tax EU domicile become more apparent.
The trend towards operating more than one captive for multinational
risk will be a factor in this growth.
Dublin will be used for solutions to
specialist insurance needs, such as insurance securitisation, finite
reinsurance, political risk coverage, association captives, P&I
clubs and international employee benefits captives.
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