Tom Barry believes changes in Irish and EU legislation helped to pave the way for Canada Life to move into the German market, writes BarryO'Halloran.

For the Irish boss of a North American financial giant, Canada Life head Tom Barry spends an unusual amount of time looking east. Germany, the sputtering powerhouse of the European economy, has provided his company with one of the more unusual success stories of the last decade in Irish business.

As well as running the Irish arm of the multinational life and pensions business, Mr Barry is also ultimately responsible for Canada Life Europe, the group's German division. This is its fifth year of trading and, from a standing start, it is set to outgrow its Irish sister company.

In 2003, it sold 54,000 policies, and wrote €68 million worth of business, leaving it just €16 million behind its Irish counterpart. In its first year of operation, Canada Life Europe sold 154 policies, jumping to 12,000 in 2002. The acquisition of rival insurer Prudential's German operation was one of the factors behind the acceleration to 54,000 policies sold last year.

This has elevated Canada Life Europe to third most significant player in its segment of the German market. That is a comparatively small segment, as the type of unit-linked products with which we are familiar are still new in Germany but, as Mr Barry argues, small in terms of an overall market of 82 million people is not small at all by Irish standards.

Given the size and potential of the German market, it's probably not terribly surprising that Canada Life Europe is growing quickly there. What sets it apart is that this growth is being driven from Canada Life's offices in Blackrock, south Dublin, and not Frankfurt or Bonn.

Sitting in his office (which boasts a pretty good view of Dublin Bay), he gestures at the office block next door. "If you go in there, you'll hear a lot of people speaking German, because that's where it's administered from," he says.

The reason for this is that Canada Life in Ireland, and particularly Mr Barry and his colleague, Mr John Lyons, first broached the idea of going into Germany to their Canadian parent company.

"The origins of it go back to the mid to late 1990s when Canada Life Ireland had had a great run," he says. "We had 35 per cent growth for effectively 10 years in a row. But there's still just four million people in Ireland, so we felt that we ought to develop other strings to our bow.

"The idea of going into Germany came up. It was very much helped by what was going on in legislation in two ways: first of all Ireland was planning to introduce its 12.5 per cent corporation tax; second, EU regulation said we could have an Irish company registered and regulated in Ireland [Canada Life Europe is an IFSC company\], but selling into the German market.

"So that's why we set up an IFSC company, so we could continue to develop our business."

It was a judicious move on the part of the Irish business, as Canada Life was looking at possible expansion opportunities around the world.

"Canada Life worldwide was looking at a variety of developments at that stage, including India, Germany and Brazil," he says.

"It chose to develop into Brazil out of its home office in Canada. It then decided not to develop into India at all and it accepted our proposals to develop into Germany out of Ireland."

Mr Lyons took on the task and now runs Canada Life Europe, dividing his time between the two countries. "We report into Canada, but the German and Irish operations are both Irish companies under my direction, and we report on those.

"For us it's great in that it gives us a great market. But, also, we can now share our costs. We have one IT department, one finance function and one set of accountants and actuaries.

"We have developed the unit-linked business in both Germany and Ireland, so we have one administration system, and both businesses can be run through that system. So it's good for the Irish business as well in that it keeps our costs down."

While another Irish businessman with a slightly higher profile might believe that EU regulations hinder business, it was one such regulation that made it possible to run Canada Life Europe from Ireland. In 1995, the EU approved a regulation aimed at creating a single financial services market. This paved the way for Canada Life Europe.

"That was very important for us," Mr Barry points out. "Up to that you had to get prior approval of products in Germany from the German regulator. That led to a very long product development process and not a lot of innovation. When that became freed up, we could sell our products in Germany. "We constantly come out with new products here and we were able to do that in the German market as well."

This helped to set Canada Life Europe apart. First, it was new and selling a new type of product - it was innovative in itself. Second, it was developing new products every year, in contrast to the domestic players, who were only bringing something new to the market every decade or so.

"We chose the unit-linked market and, within that, we chose the broker market. Lots of German companies have direct sales forces. But the broker unit-linked market was the one that was developing. The broker business has gone from zero to about 22 per cent of German business. And similarly, unit-linking has gone from zero to 20 per cent-plus. So our business has developed along with that business."

Mr Barry points out that Canada Life Europe could, conceivably, overtake Canada Life Ireland in the not too distant future. However, he does not see everything shifting to Germany if that happens. This is largely because of our favourable corporate tax regime, 12.5 per cent against the German 39 per cent rate. In addition, there is the fact that the current formula works well. "Our plan is to continue this way, but I suppose you can never know what could happen in 10 years' time," he says.

There have been changes elsewhere in Canada Life's universe. Last year, the group as a whole was taken over by another Canadian operation, Great-West Lifeco. This brought three large life and pensions businesses (the third being London Life) into a single entity with assets of 168 billion Canadian dollars (€100 million), and C$25 billion in revenue.

This week, Great West reported net profit of $1.2 billion (€952 million) in the year to December 31st, 2003, a 31 per cent increase on 2002. Earnings per share were $2.998, to which Canada Life contributed $0.115 (this was calculated from July 10th, 2003, the day the acquisition was completed).

According to Mr Barry, Canada Life in Ireland wrote €84 million worth of business in 2003.

On the home front, Canada Life Ireland has been suffering from the same malaise as many others in its sector. "For all life companies, 2003 was a good bit lower than 2002," he says. "I would say the whole market is down about 25 per cent."

But he adds that 2002 had the one-off impact from Special Savings Incentive Accounts. Excluding that business, the market was unchanged.

Personal Savings Retirement Accounts, which were introduced in the fourth quarter of last year, have not been big sellers for life companies.

"For all life companies, Ireland has been a great market for the last 10 years, and has reached a much higher plateau than before, but we'll have to see where we go from here," he says. In the meantime, don't be surprised if you spot him reading Goethe.