Although Ireland hasn’t experienced a huge amount of growth within its captive market over the last few years, there is said to be a renewed interest in Dublin as a preferred domicile
Named the ‘Emerald Isle’ for its lush green landscape, Ireland is rich deep in history and culture. The Republic of Ireland is a member of the European Union (EU) and currently is the only member state with English as its official language. For a small country, Ireland holds a small power in the world with its ties to Washington and Brussels.
Ireland first established its captive insurance market in 1989. Ireland’s sole regulatory authority for financial services is the Central Bank of Ireland (CBI). Insurance Ireland is the representative body for the Irish insurance, reinsurance, international and captive management sector.
In addition, as a member EU the Solvency II directive, an EU law that codifies and harmonises the EU insurance regulation, must be followed.
With that, the EU’s Freedom to Provide Services (FoS) and Freedom of Establishment (FoE) offers all types of international re/insurers and captives is central to Ireland’s international financial services activities.
Ireland’s strong and stable captive insurance market has also made a name for itself. Over the last few years, although there has been little growth, there are many reasons for this such as merger and acquisitions as well as closures of captives that are no longer relevant. But industry experts highlight that there is a renewed interest in Dublin as a preferred domicile.
Commenting on the current trends in Ireland, Lenka Lyons, senior vice-president at Marsh Management Services (Dublin), says: “Last year was a pivotal year for the Irish captive market; a number of new clients decided to seek approval for establishment in Dublin.”
She notes that this is a positive development for Dublin and is in line with the global trend for more organisations moving to the application process, resulting in an increase in new captive formations.
On other trends, Eoin Caulfield, partner at William Fry, reflects on environmental, social, and corporate governance (ESG). He says: Although only still emerging, we feel that the ESG and sustainability agenda will be a real catalyst for growth in the captive sector.”
Caulfield explains: “This will be especially the case in industries that might no longer be readily insurable in the commercial markets, for example for groups with environmental or similar exposures. Captives have traditionally been used by companies when they are unable to obtain insurance at acceptable commercial rates.”
“Given how the ESG agenda is already affecting both sides of the insurance balance sheet, coverage areas and choice of investment assets, we see a renewed opportunity for the captive sector in offering more bespoke solutions for a group,” he adds.
In order to draw in companies to establish captives on the island, Ireland had to keep itself competitive against other European captive domiciles.
Caulfield outlines that Ireland has a long tradition in the international financial services sector and has produced an ecosystem that allows captives and other international financial services companies to thrive.
Ireland allows the ability to exercise freedom of establishment and freedom of service passporting rights, which Caufield notes is key for the international insurance sector (including for captives) and these freedoms are well understood and accepted by the regulators and local advisory firms.
In addition to being a captive domicile, Lyons explains that Dublin is also a well-established international (re)insurance centre with considerable expertise and experience within the underwriting, actuarial, auditing and legal sectors. She believes all of this helps make sure that Dublin remains a competitive location.
Rules and regulations
Solvency II has caused many challenges since it was established in 2016, especially in the captive insurance sector as it has added a lot of complexity to the process and structures of companies and supervisors, presenting a significant regulatory burden.
Lyons suggests that making sure that the application of the principle of proportionality to captives under Solvency II remains a priority for all captive owners across Europe.
In February 2019, the European Commission called for the European Insurance and Occupational Pensions Authority (EIOPA) to provide technical advice for a comprehensive review of the Solvency II Directive.
Lyons states that the COVID-19 pandemic has unfortunately delayed the completion and implementation by EIOPA of the Solvency II 2020 Review.
She explains: “It is crucial, for the growth of captives to continue, to seek automatic application of proportional measures and standardisation across all EU domiciles alongside local regulatory frameworks that will allow the smooth and transparent process of new captive license applications.”
COVID-19
Ireland, like the rest of the world, experienced a lot of uncertainty in 2020 and at the start of 2021 due to the ongoing COVID-19. Irish residents faced one of the world’s longest lockdowns and like many other countries are continuing to ease restrictions.
Commenting on if the COVID-19 pandemic has any effects on the captive market, Caulfield says: “Due to the stagnation in economic activity during the COVID-19 crisis, many captive clients simply ‘battened down the hatches’ because the sectors they were badly affected.”
However, on the other hand, those who were in growth sectors such as online retail, DIY and some technology companies, all performed very well.
“Additionally, there was greater regulatory engagement as the Central Bank of Ireland (CBI) paid close attention to the solvency, liquidity and capital resilience of all insurers, including captives,” Caulfield explains.
The underwriting and financial impact of COVID-19 will vary from captive to captive, depending upon which lines of coverage are underwritten, however from what we have seen locally, the impact has been broadly minimal.
“The focus of boards has been mainly in the area of liquidity, which has also been an area of focus by both EIOPA and the CBI,” Lyons concludes.
