This briefing explains why Ireland is proving so attractive a location to the reinsurance industry. It also explains the application process and the ongoing supervisory controls to which a reinsurer is subject.
Advantages of Ireland
There are many advantages to locating a reinsurance operation in Ireland:
- Ireland is a full member of the European Union and has implemented the EU Reinsurance Directive so that reinsurance companies regulated by the Central Bank of Ireland (the “Central Bank”) can service all other EEA markets without the need for further authorisation (see paragraph on passporting at the end of this briefing);
- The Central Bank is widely regarded as a responsible yet responsive regulator – applications for authorisation typically take 3 months from the date of submission of a completed application to the Central Bank;
- It is a well developed insurance market with many of the world’s leading insurers and reinsurers based here;
- Ireland’s close proximity to London enables easy interaction with brokers and other insurance and reinsurance entities operating in the London market.
- The standard rate of corporation tax on trading income is currently 12.5 %;
- Ireland has an extensive network of double taxation treaties with most of the world’s leading industrialised nations. There are currently 69 signed treaties of which 64 are in effect;
- An exemption can be obtained from the 20% dividend withholding tax by many companies resident in or controlled by residents in EU member states or countries with which Ireland has a taxation treaty;
- No value added tax is payable on the supply of reinsurance services;
- With a plentiful supply of top quality legal, actuarial, accounting and insurance management service providers, there is an experienced pool of service providers.
When a group is considering Ireland as a location for a reinsurance company, one of the initial steps it should take is to arrange a preliminary meeting with the Central Bank to discuss at a high level, its proposed operations (indicating whether it will be a life, non-life or composite reinsurance operation) and its reasons for considering Ireland as a location. Thereafter, the applicant, generally with the assistance of local advisers, will prepare an application containing prescribed information, which is submitted to a dedicated (re)insurance authorisation team in the Central Bank. Following its review of the application, the Central Bank will typically issue a series of follow up queries to the applicant seeking additional information in respect of aspects of the application. Once the application is clear of comments from the authorisation team it will be submitted to a senior management committee for formal approval. An applicant cannot commence writing business until the Central Bank has granted the formal authorisation. There is currently no application fee payable to the Central Bank.
Application to the Central Bank
The applicant must provide detailed information to the Central Bank in relation to the proposed company. The information required is set out in a checklist issued by the Central Bank and the following is a non exhaustive list of the information and documentation that would need to be prepared:
- Overview of the parent/group to which the applicant belongs;
- Whether the parent/group is subject to consolidated supervision;
- Ownership structure including details of all qualifying shareholders;
- Applicant’s objectives and proposed operations including product types, target markets and distribution structure.
- Legal structure of the proposed company including its constitutional documents;
- Internal governance structures including details of the board of directors and senior management;
- Risk oversight arrangements including: audit; compliance; risk management; financial control; internal controls;
- What activities are to be outsourced (including oversight envisaged); and
- Capital and solvency projections and financial information including required actuarial certification.
Additionally, the Central Bank must be satisfied with the fitness and probity of the proposed shareholders and persons who will occupy controlled functions or pre-approval controlled functions, including: directors and senior management of the reinsurer. The relevant persons are required to complete an Individual Questionnaire in the prescribed form that should be submitted to the Central Bank with the application in accordance with the Central Bank’s Fit and Proper Requirements.
Authorisation in Principle
When the Central Bank has approved the application and before the formal authorisation is granted, the applicant will receive confirmation of “authorisation in principle”. Attached to the “authorisation in principle” will be a list of conditions which the applicant must satisfy prior to final authorisation being granted.
One important condition is a requirement on the applicant to provide evidence that the appropriate capital has been received by the proposed Irish entity to enable it to satisfy its regulatory requirements in relation to the business projected in the application.
Once all the relevant conditions have been satisfied, the formal authorisation is granted to the applicant and the Certificate of Authorisation will be issued.
Reinsurers are supervised on an ongoing basis by the Central Bank. The principal requirements with which reinsurers are required to comply derive from the European Communities (Reinsurance) Regulations 2006 (the “Reinsurance Regulations”), which implemented the Reinsurance Directive in Ireland. Below is a description of some of the main ongoing requirements applicable to reinsurers.
Reinsurers are subject to the Central Bank’s risk based supervision framework called “PRISM” (Probability Risk and Impact System). PRISM is a software application and a supervisory tool designed to assess financial firms based on two distinct concepts – the impact on the economy and consumers in a crisis and the probability that problems will arise.
Regulatory Capital Requirements
Reinsurers, once authorised by the Central Bank, must maintain technical reserves in respect of their underwriting liabilities. Those liabilities are calculated in accordance with the European Communities (Insurance Undertakings: Accounts) Regulations 1996 which implement Directive 91/674/EEC and the Reinsurance Regulations as supplemented by requirements papers published by the Central Bank for each of life, non-life and composite reinsurers (“Requirements Paper”). A reinsurer must adopt a “prudent person” approach with regard to the investment in assets to cover its technical reserves. There are no quantitative limits on the admissibility of specific asset types for this purpose.
Reinsurers are required to establish and maintain an adequate solvency margin of assets free from all foreseeable liabilities. The detailed rules for calculating the solvency margin are contained in the Reinsurance Regulations as supplemented by the relevant Requirements Paper. Generally, the Central Bank will require a reinsurer to maintain a solvency margin of 150% of the required minimum solvency margin.
Reinsurers are also required to maintain a minimum guarantee fund. The amount of the guarantee fund must be equal to one-third of the solvency margin required to be established, subject to a minimum of €3,400,000.
Reinsurers are obliged to file quarterly and annual returns with the Central Bank. The returns comprise various forms available on the Central Bank’s website. Guidance on completion of the relevant forms is available in the relevant Requirements Paper.
Corporate Governance Requirements
The Central Bank’s Corporate Governance Code for Credit Institutions and Insurance Undertakings (the “Code”) applies to reinsurers.
The Code contain provisions which touch on most aspects of a reinsurer’s operations including the following:
- The Board of Directors and sub-committees (e.g. composition, role and responsibilities);
- Independent Non-Executive Directors (a minimum of two will be required).
- Senior management (e.g. role and responsibilities, appointment of general manager);
- Internal controls (e.g. risk management, underwriting, retrocession, investment etc.);
- Audit (both internal and external) functions;
- Compliance (e.g. functions of the compliance officer); and
- Necessary policies and procedures (e.g. risk appetite statement; conflict of interests policy; and remuneration policy).
The Code provides that reinsurers must have levels of governance and oversight that are consistent and proportionate to the size and complexity of the operation.
The Code also requires a reinsurer to ensure that it has sufficient resources based in its Irish head office to demonstrate that the strategic direction, decision making, control and accountability of the reinsurer is located in Ireland (i.e. the reinsurer’s “heart and mind” must demonstrably be in Ireland).
On-site Supervisory Visits
An important tool in the Central Bank’s supervisory regime is the carrying out of regular on-site inspections of reinsurers. The scope of the inspection can be general in nature comprising a review of the reinsurer’s operations, controls and corporate governance. Alternatively, themed inspections may be carried out on reinsurers in relation to a particular matter.
Prior to an inspection the reinsurer will receive a letter of notification in relation to the inspection that will set out the scope of the inspection and any documentation that must be provided in advance to the Central Bank. The inspection itself, which generally takes about 5 days, begins with a preliminary meeting and ends with a close out meeting which is followed by a post-inspection report that contains issues identified by the Central Bank that must be addressed by the reinsurer.
Reinsurers that are authorised by the Central Bank are entitled to write business in all other EEA markets either by establishing a branch in the market (known as a freedom of establishment) (“FOE”) or by way of freedom of services (“FOS”). There are no formal notification requirements for reinsurers wishing to passport. However, a reinsurer intending to establish a branch in another Member State, should notify the Central Bank of its intention and provide the Central Bank with certain limited information on the branch operation.