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Dublin loses allure for some insurers

Posted On: Mar. 13, 2016 12:00 AM CST

XL Catlin and Beazley Group P.L.C. both say their recently announced plans to change their domicile from Dublin relate to regulatory changes at the domiciles they are moving to rather than other considerations such as tax rates.

While taxation remains an important part of a company's decision on where to locate, sources said the quality of regulation, capital rules and avoiding reputational risks are higher on insurers' and reinsurers' list when choosing where to locate their home tax base.

In a survey last October, London-based accounting firm Grant Thornton Singapore Pte. Ltd. said 20% of insurers and reinsurers reported that their board was reviewing the location of their domicile.

In the moves announced in February, XL Catlin, the marketing name for XL Group P.L.C., said it would move its domicile to Bermuda from Dublin subject to regulatory approval, and Dublin-based Beazley said it would move its management and holding company to London.

Following its acquisition last year by Hamilton, Bermuda-based Catlin Group Ltd., officials at what now is XL Catlin described the move to Bermuda as a natural step.

“XL has had a presence in Bermuda since 1986, which grew significantly following the transformative transaction with Bermuda-based Catlin last year,” XL CEO Michael S. McGavick said in a statement.

“Following the Catlin transaction, and with the recent determination of full Solvency II equivalence for Bermuda, it has been concluded that the (Bermuda Monetary Authority) is best situated to serve as XL's groupwide supervisor and to approve XL's internal capital model,” he said.

Solvency II, Europe's risk-based capital regime for insurers and reinsurers, went into effect Jan. 1.

In filings with the U.S. Securities and Exchange Commission, XL said it had “numerous discussions” with the Central Bank of Ireland, the Irish insurance regulator, before deciding to move to Bermuda.

XL said the change is expected to have no material impact on its financial results, including its global effective tax rate.

A spokeswoman for XL Catlin said that the company pays tax in many jurisdictions around the world where it operates and where losses occur.

“This is not even remotely about trying to chase the lowest tax dollar,” said a source who asked not to be named.

Its original move to Dublin was in part due to reputational concerns.

In its recent SEC filing, XL stated that: The move to Dublin came about after a reviewing several factors, “including reputational, political and other risks because of negative publicity regarding companies that were incorporated in jurisdictions such as the Cayman Islands at the time and the concomitant potential risks” on XL's global business platforms.

The latest move to Bermuda is a holding company matter and will not materially affect the company's shareholders, employees or clients, a source said.

XL's domicile move to Bermuda “is a signal that Bermuda's insurance regulation meets critical international and bilateral regulatory standards,” Brad Kading, president of the Association of Bermuda Insurers and Reinsurers, said in a statement.

Achieving Solvency II equivalence will reap dividends for the domicile, he said.

“We have a lot of work yet to do, but we applaud the Bermuda government's efforts to meet or exceed international standards, not only on financial market regulation, but also with the ever-evolving standards on tax law transparency, cooperation and enforcement,” Mr. Kading said.

“We underwrite here, we pool global risk here, and we make business decisions here,” he said. “If you want to operate an insurer with a Post Office box, you don't do it here,” Mr. Kading said in the statement.

Beazley, which became incorporated in Jersey and a tax resident in Ireland in 2009, said at the time that it was doing so to take advantage of a more favorable tax regime.

But of its recent decision to return to London, Beazley said it would “simplify the management and decision-making of the group and allow shareholders access to a U.K. dividend stream.”

“Following legislative changes in the (U.K) Finance Act 2012 relating to controlled foreign companies, the directors anticipate that there will be no material change in the group's reported tax rate, or taxation paid as a result of the change in the group's tax residence,” Beazley said in a statement.

When choosing a domicile, 95% of insurers and reinsurers participating in the Grant Thornton study said easy access to markets and simple, clear regulation were the biggest drivers of their choice of domicile.

Seventy percent cited simple, clear regulation; about 58% cited realistic capital adequacy requirements; 55%, English as the language of business; 50%, easy access to markets; 45%, a respected, credible regulator; 40%, a low corporate tax rate; 25%, a plentiful talent pool; and nearly 11%, attractive living and working conditions.