Unlike the Caribbean, Ireland is not synonymous with sun, sea and sand, but Europe’s third largest island does compare when it comes to captives, as it boasts more than 100.
Unlike the Caribbean, Ireland is not synonymous with sun, sea and sand, but Europe’s third largest island does compare when it comes to captives, as it boasts more than 100.
Lorraine Stack, senior vice president of captive solutions at Marsh Management Services Dublin, admits that while captive growth was steady throughout the 1990s, with a period of rapid growth in the early 2000s during the hard insurance market, there was a slowdown in the late 2000s.
She says: “[The slowdown was] reflective of global economic conditions, and more recent growth has been primarily organic where existing captives are extending coverage to include new lines of business.”
But despite this Marsh do expect future growth in captive numbers as the broader economic recovery continues globally.
According to Sarah Goddard, CEO of the Dublin International Insurance & Management Association, the first captive insurance company was registered in Ireland in 1989, with infrastructure changes starting a couple of years earlier when the International Financial Services Centre was set up.
“The immediate attraction of Ireland lays in the ability of a captive re/insurer to use the EU life and non-life directives to write business on a freedom of services and freedom of establishment basis, automatically giving access to all EU and EEA member states.”
Initial interest for setting up captives came from Europe-based parents, but soon US parent companies with European operations began to adopt Ireland-based captives. Indeed, well-established companies such as the Coca-Cola Company have set up shop there.
Goddard explains that Ireland’s specific classification of a captive insurance company lowers its total.
She says: “Ireland uses a very precise definition of captives—the one that is used in Solvency II—so entities which would be viewed as captives elsewhere are not considered captives in Ireland (this has to do with a few aspects such as the type of parent company and whether the entity writes third party business).”
“Our most recent figures are that there are 109 pure captives and 32 ‘quasi-captives’, the latter being what other jurisdictions classify as captives but Ireland doesn’t because of using the Solvency II definitions.”
Goddard feels the types of business written through an Irish-based captive tend to be European in nature, and can range from very simple single lines to complex multiline coverage.
Tim Byrne, executive director of Willis Management in Dublin, says that as a member state of the EU, a captive licensed in Ireland can write insurance and reinsurance business across all 30 EU and EEA member states without requiring individual member state licensing.
Byrne says: “Such a captive can write all classes of risk (including statutory covers) and the cross border activity is know as ‘freedom of services’—a recognised principle of all EU member states.”
“Ireland was the first EU member state to attract captives in large numbers and as such has built up an infrastructure and reputation which supported by a 12.5 percent corporate tax rate has proven very attractive for EU and non EU domiciled multinational groups. Owning a captive in Ireland is also an alternative to traditional EU fronting.”
Stack explains that historically, Ireland has been a preferred domicile for multinationals with significant European operations and exposures.
“Easy access, a well educated English speaking workforce, a stable and competitive corporate tax regime, and a well established local network of service providers continue to make a Ireland attractive as a European hub for captive operations.”
“Ireland also has a diverse insurance market including life/non-life, insurance/reinsurance companies and catastrophe bonds, which means a broader range of expertise both at operating company level and with local service providers. Importantly, the Central Bank of Ireland has over 20 years of experience in regulating captives and has an appreciation for the unique nature of captive risk exposures and the proactive manner in which captive sponsors manage risk.”
Location consideration
When deciding on a location for a captive, companies can be drawn to prevalent jurisdictions such as the US and the Caribbean based on the number of active captives and impressive growth figures.
But Byrne believes that the reasoning behind the expansive figures should be taken into account. He explains that captives that are formed in the Caribbean and the US are predominantly owned by North American entities and formed to provide cover to physicians and private hospital groups.
He says: “European countries have tended to date to have a more socialised health system and so the growth around these medical malpractice type captives has not been replicated in Europe.”
“Each area has its niches—US entities are able to form RRGs (risk retention groups), which do not exist in Europe. All EU captives can potentially write insurance cover across all EU borders whereas US captives (other than RRGs) must be aware of local state insurance procurement rules.”
According to Stack, captive numbers alone don’t necessarily give the full picture of how domiciles are performing.
“Ease of establishment, and competition between regulators to attract captive business has also assisted in driving the numbers in the US, particularly in the small captive space. Historically here in Europe, higher solvency requirements and conservative fiscal regimes have meant that captives have traditionally only been accessible to large corporates. This also means that individual captive sizes in Europe can be larger than in the US,” says Stack.
Waiting in vain
Solvency II implementation has always been something that the Central Bank of Ireland has supported.
Gareth Colgan, deputy head of the prudential policy division at the Central Bank of Ireland, believes that the move towards an economic framework with risk-based capital requirements represents a necessary improvement from the existing regulatory framework.
“With the delays experienced in finalising Omnibus II, European Insurance and Occupational Pensions Authority’s (EIOPA’s) initiative with regard to its opinion on interim measures regarding Solvency II and more recently the guidelines package, is welcomed by the [Central Bank of Ireland], as we strongly favour a consistent pan-European approach which avoids the potential for individual jurisdictions to adopt their own solutions at a national level.”
The Central Bank of Ireland has had a dedicated Solvency II team in place since 2010, which produces resources, including an ORSA report
ing tool, and represent it at EIOPA’s working groups and committees.
“We also proactively engage with the Irish insurance and reinsurance industry in fostering awareness of Solvency II developments. We achieve this primarily through active dialogue with the industry, publication of a quarterly Solvency II newsletter and industry briefings and events.”
Though the Central Bank of Ireland is content with the progress being made towards implementation, Stack says that Solvency II will not be without its challenges for captives and that the industry welcomes an end to the uncertainty that has been caused by the delays in implementation.
And while succinct regulatory formation is definitely a plus for potential captives, old clichés such as the good old-fashioned British weather could force companies elsewhere, says Byrne.
He adds that Ireland’s lack of protected cell company and re-domiciliation legislation could also be seen as disadvantages to the domicile.
Stack feels that there are no specific drawbacks to domiciling in Ireland. “The key considerations corporates would look at before establishing here are the same for other jurisdictions, such as capitalisation, regulation, infrastructure, convenience and ease of operation; all areas in which Ireland performs comparatively well in a European context.”
