Magazine article Risk Management

Operating in Ireland

Magazine article Risk Management

Operating in Ireland

Article excerpt

In 1987 the Irish government created the International Financial Services Centre (IFSC) at Dublin's Custom House Docks as part of its effort to increase financial services investment in the country. Today, there are over 140 active captives in the IFSC, and with nearly 40 U.S.-owned captives, Dublin is the premier location for North American captives in Europe.

In the past decade, Dublin has become an established European domicile catering specifically to direct writing captives. Of the U.S. captives, 21 are direct writers using the European Union (EU) Freedom of Services directives to cover risks in EU countries from a single location. For example, Hertz issues compulsory motor insurance in 14 EU countries. Other major U.S. corporations with captives in Dublin include AT&T, Coca-Cola, Motorola and E.I. Du Pont.

Many of the U.S. companies coming to Dublin have sister captives in Bermuda, Vermont and other domiciles to cover North American risks, and establish a Dublin captive for their European and other international exposures. Dublin captives can reinsure risks to captives in other domiciles to use a parent company's existing capital base.

In addition, specialist insurers, such as ACE, Centre Re and XL, are using the IFSC to access European markets. Premiums written in 1996 in the nonlife sector totaled nearly $4 billion. Dublin is the fifth largest reinsurance. center for U.S. primary insurance, with over $450 million of reinsurance premiums coming from the United States alone.

In talking to risk managers, the single most important factor motivating them to decide on a Dublin captive is the desire to avoid insurance carriers' fronting fees in Europe. This is a logical conclusion of the recognized trend toward unbundling services, where activities such as underwriting, claims handling, loss adjusting and HPR engineering advice can be priced and sourced separately. As fronting fees can range from 5 percent to 7 percent, the savings possible by establishing a captive can be significant.

The companies best placed to take advantage of the IFSC are usually those with more than $2 million in annual premiums in Europe. Captive programs typically 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.

Apart from covering European risks, many other countries can be covered on a nonadmitted basis, including Australia, Hong Kong, Taiwan and Singapore. Corporations can use treasury management structures to move premiums from their operating subsidiaries to their captives, bypassing insurance brokers in the process.

Profile of a Captive

In 1993, H.J. Heinz Company chose Dublin as a captive location for its direct writing ability in Europe and Far Eastern countries where the company has significant operations. The application was made in September 1993, approved in December, and operations commenced in February 1994.

The timetable for this process was typical. Applications are generally reviewed within four to six months, depending on the quality of the application documentation. Direct writing insurers receive authorization from Ireland's Department of Enterprise, Trade & Employment. …

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