What’s new for Dublin’s captive insurance industry?

In recent years Dublin has been actively implementing the forthcoming new pan-European regulatory rules coming into effect at the beginning of next year.

There’s been a lot of preparatory work at the local level, including a new corporate governance regime in advance of the Solvency II requirements and a proportionality regime known as the Probability Risk and Impact System (PRISM), and these have embedded into the way self-managed captives and captive managers approach the forthcoming regulatory environment, ahead of its full implementation.

This has meant that there has been a lot of activity around systems, processes and understanding the application of risk in a captive’s context in recent years.

As the embedding process has been finalising, the captive industry in Dublin has been looking at future strategic opportunities for clients, bringing to bear the deeper and more intense understanding of risk coming out of the regulatory infrastructure changes.

There have been a few changes in the local fiscal environment, but one of the biggest initiatives at the moment is the IFS2020 project, launched by the minister of state, Simon Harris, who is leading a multidisciplinary team to establish the new infrastructure for the next phase of international financial services development in Ireland.

This is a very exciting initiative that is gaining a lot of momentum and there’s a lot of activity as various threads are actively developing.

Over recent years, Dublin has become a hub for much tech activity, and organisations such as Google, LinkedIn, Facebook, PayPal and many other very familiar brands have set up extensive operations here. The IFS2020 project is looking at the conjunction of financial services and technology, using the expertise in both areas that is present in Ireland, to develop a new generation of ‘fintech’ within the next five years, and the focus on analytics and risk will ultimately have a positive impact on the captive industry here in Dublin.

How many captives are currently domiciled in Dublin?

It may seem unusual, but this is a difficult question to answer. Because different jurisdictions classify captives in different ways, there isn’t a clear comparison with the Irish industry, where a very ‘pure’ Solvency II-type definition has been in place for several years.

The Central Bank of Ireland’s definition of a captives is: “An insurance or reinsurance undertaking, owned either by a financial undertaking other than an insurance or reinsurance undertaking or a group of insurance or reinsurance undertakings within the meaning of point (c) of Article 212(1) of Directive 2009/138/EC (the Solvency II Directive) or by a non-financial undertaking, the purpose of which is to provide insurance or reinsurance cover exclusively for the risks of the undertaking or undertakings to which it belongs or of an undertaking or undertakings of the group of which it is a member.”

So there are certain reinsurers and insurers in Dublin that would be classified as captives in other jurisdictions, leading to the number of captives in Ireland, currently standing at more than 100, not being an accurate comparison with other countries.

Is there a trend in the types of captives domiciled?

In the past year or so, the trend has been for large companies in certain sectors to set up captives in Ireland. In particular, pharmaceuticals, energy companies and professional services firms have been active in establishing new operations.

Other trends include parent companies using their captives for employee benefits business, which has been growing over recent years.

Which parent companies are you seeing writing and setting up in Dublin?

Most of the parent companies which have recently set up are either pan-European or global companies looking to use captive structures as a central part of their risk management strategy.

How has Dublin’s reinsurance market developed?

Dublin has been a significant centre for reinsurance for many years now, assisted by the early adoption of the Reinsurance Directive which paved the way for Solvency II in the reinsurance context.

Many of the largest global reinsurance companies have significant operations in Dublin, some of which are European or global headquarters.

As well as large non-life reinsurance businesses, Dublin is a hub for international life reinsurance operations, and indeed the latest authorisation, Unipol Re, is an Italian-owned life reinsurance entity.

How is Dublin finding the run-up to the 1 January 2016 deadline for Solvency II?

The Solvency II implementation programme has been going for many years now. Ireland has the second largest number of companies applying to use internal models, after the UK, and there has been significant work by the Central Bank of Ireland, the regulatory authority in Ireland, on this and many other aspects of implementation, such as Forward Looking Assessment of Own Risks and reporting systems.

In reality, Ireland has been implementing aspects of Solvency II for more than five years, for example, the corporate governance code, which was implemented in 2010 and as part of which it developed a specific regime for captive reinsurers and insurers.

The Central Bank of Ireland hosts a monthly Solvency II implementation forum and issues regular newsletters about progress towards implementation, and has undertaken surveys across industry to ensure there is a good level of readiness.

DIMA has been involved in many of these initiatives, working with the regulator on certain aspects through consultations, and separately providing training workshops and briefing sessions on a vast range of subjects.

It is important that with such sweeping changes, industry has the tools necessary to implement as efficiently and effectively as possible, and the fact that some of these aspects are already hard wired into business practices in Ireland, because of early adoption, bodes well for the deadline.

Ultimately, Solvency II is such a huge challenge that the implementation deadline of 1 January 2016 is in reality only a milestone rather than the ultimate goal.

At a market meeting in Dublin earlier this year, European Insurance and Occupational Pensions Authority chairman Gabriel Bernardino commented that there will be continuous developments, and in particular singled out the Central Bank of Ireland’s new actuarial regime as a direction that may be taken across Europe as part of the evolution of Solvency II in the future.
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