Dublin Cross Border Market – Conducting Business in Italy from Ireland Ann Dalton Director, Life Strategies Limited Ann Dalton Director, Life Strategies Limited A&L Goodbody Conference May 2002

n Nine Italian companies -Arca Vita SpA -Area Banca -Banca Popolare di Vicenza -Banca Sella -Generali -Gruppo Fondiaria -Mediolanum SpA -Monte dei Paschi di Siena -Sanpaolo IMI Brief History

n Effective & Flexible Regulatory Regime n Innovative Life Insurance Market n Developed Life Insurance Infrastructure n Favourable Taxation Regime Why Ireland ?

Developed Regulatory Regime n Freedom to innovate once solvency isn’t threatened n Contrasts with more rigid system in Europe n Fully implemented all relevant EU legislation n Constructive attitude of regulator - speed to market

Regulatory Arbitrage - Capital n Some regulatory arbitrage –Solvency margin –Valuation regulations n Capital needed for additional safety cover has a cost n Annual cost is difference between shareholders’ hurdle rate of return and return on risk-free assets

Regulatory Arbitrage - Capital Example n €1 billion of unguaranteed unit linked business. n Difference of €10 million in solvency margin requirements between Ireland and Italy n At an annual cost of 8% (12%-4%), saving is €0.8 million each year. n New EU Solvency Margin Directive

Home Regulator vs. Host Regulator n “Common Good” requirements n Home Country – solvency supervision n Host Country – consumer protection n Policyholder enjoy local consumer protection rules n Access to innovative products

Innovative Life Insurance Market n Possible to manufacture wide range of products from Ireland –Unit linked –Index linked / guaranteed equity bonds –With profit / unitised with profit –Personal portfolio bonds (life wrappers) –Protection products –Flexible whole of life –Critical illness n Irish regulations currently allow a much wider range of assets to be used to back life insurance contracts

n Wealth of experience/expertise n Infrastructure to support most products n Ability to outsource facilitates a shorter time to market (possible VAT) n Possible to achieve virtual organisation n Low cost / efficiency n Flexibility in organisational configuration Developed Life Insurance Infrastructure

Favourable Taxation Regime n Corporation tax of 12.5% n Freedom of Services vs. Freedom of Establishment n Concept of “permanent establishment” from regulatory versus taxation perspective n Careful to structure business appropriately to ensure validity of FoS n Policyholders enjoy gross roll up on investment and only pay exit tax (FoS versus FoE) n New circular from Italian Ministry of Finance ?

Financial Results n Combined figures for 2 largest Irish-based companies operating in Italian market during 2000 & Premium Income€2.1bn Profit before Tax€35.5m€47.6m Taxation€3.6m€4.8m Profit after Tax€31.9m€42.8m Funds under Management€3.8bn€5.2bn

Conducting Business in Italy from Ireland Ann Dalton Director, Life Strategies Limited Ann Dalton Director, Life Strategies Limited