Legislation introduced by the government in late 2022 is set to bring a new dawn for captives in France. Ned Holmes talks to SRS’ Maxime Schons about the seminal period for the French captive industry
The French captive insurance market is waking up after decades of slumber. However, hopes for this new dawn appeared to be hanging by a thread back in October when Bruno Le Maire, France’s minister for economy and finance, voiced a strong stance against captive insurance structures and the prospect of new legislation being included in the 2023 Budget.
Nevertheless, a remarkable U-turn saw French Prime Minister Elisabeth Borne push the introduction of a new regulatory regime for captive insurance companies in the 2023 Budget.
It was a landmark moment for those working in the industry and a result of two years of lobbying by Association pour le Management des Risques et des Assurances (AMRAE), the French risk management association.
“It was a great moment for us last year, because we thought we would never see it,” explains Maxime Schons, managing director at Strategic Risk Solutions (SRS).
“For years, the situation has been slowly moving from a bad situation to a good one. It has been accelerated since the Macron government came into power in 2017, but our opportunity came when it was raised last year.
“I was expecting to have the legislation live from 1 January 2024, rather than this year, but the speed at which things have moved has been great for us.”
SRS announced the establishment of a Paris office in November as it continues to expand across Europe in response to growing demand for captive insurance services.
“Our intention is to offer a French team, based in France and available to assist clients whenever they want,” notes Schons. “We are independent, so do not provide any brokerage solutions. We are a pure captive manager, so we are not interested in selling any other products. We are just providing the best in-class captive insurance services to these captives for the long-term.”
New life
The planned introduction of captive specific legislation has breathed new life into the industry in France, though the domicile was not completely hostile to reinsurance structures.
Hundreds of French companies are thought to own captives, but until recently, only five were legally based in the domicile.
The first formation in more than 20 years came in 2019 when the total grew to six. At least five more have been formed since 2020 — the most recent of which, Sorelac, belongs to dairy multi-national Lactalis and is managed by SRS.
The demand has only increased, with a new-found focus on developing proper regulation and a proper captive industry in the country.
The French Government wants to find solutions for risks that are not currently covered and offer a boost to the insurance industry.
“My feeling is that the Macron government is keen on growth in the country, on relocating new industries, and being creative,” adds Schons.
Schons adds that the government’s stance has changed toward countries such as Luxembourg, which were previously seen as a tax haven and are now viewed differently after Solvency II implementation.
An illustration of this shift can be seen in potential French captive legislation, which is expected to mirror Luxembourg captive legislation with a few minor differences.
While the developments of the past six months have been monumental, the specifics of the new legislation are yet to be officially outlined, though they are expected to be announced soon via a government decree.
Schons explains: “What we are all waiting for is a decree that will set out the rules of this provision. The rules are threefold. The first element is the limitation of the profits deferred to the balance sheet — 90 per cent. Second, is the time of use of these deferred taxations, which will be 15 years.
“And finally, the amount of capital — 10 times the minimum capital requirement, as calculated by actuaries will dictate how captives can be used in France.”
Legislation
Legislation and regulation are vital anywhere, but the current combination in France will make it attractive to companies considering the domicile. “They have replicated the best legislation,” Schons explains. “I wouldn’t say it is a copy-and-paste of the mechanism in Luxembourg. However, it’s really close to it. Having a provision to offset the profit limited to 90 per cent, when in Luxembourg it is 100 per cent, makes the gap particularly close. 90 per cent compared to 100 per cent is absolutely great for business, and many people are now considering relocating companies — mainly French captives with licences in Luxembourg, or new players willing to set up captives.”
Schons continues: “It is a good moment to enter the market, as the regulation is softer than in other domiciles and there are lower constraints. Due to the Solvency II Directive, roughly 80 per cent of the regulation will be the same across the EU, but what we are going to see from the other domiciles is that the other 20 per cent is getting heavier. It burdens the clients to have all this governance and substance. However, the French regulator will undoubtedly be a little more relaxed in these first few years, ultimately to attract new players, or allow relocation, to create more initial captives in the domicile.”
A regulator in its infancy may bring a potential lack of capacity for new captive formations, which may limit the initial growth of the market. On this point, Schons adds: “There are clearly educational steps that need to be taken. Next month, I am conducting an educational session, together with PwC and the regulator (the ACPR). The first big challenge is to make the captive industry better known.”
Another challenge facing the French captive industry is the uncertainty surrounding relocation. Schons believes that the government is keen for French companies with captives domiciled abroad to relocate, now that the option is available.
Challenges ahead
Challenges are natural when new ground is being covered but, despite this, the overarching feeling right now is excitement.
“It is the first chapter of the story, and we don’t know how chapter two or three will play out, but I am just amazed at how many groups are interested in this movement in France,” says Schons.
He adds: “The demand is really high. We have only been prospecting for a few months, but we have been in contact with 15 clients that are curious to figure out how a captive scenario would work in the current insurance scheme. It would be reasonable to estimate that the number of existing captives in France will double in a year to 18 months. However, that is dependent on the capacity of the regulator to assess applications.”
He concludes: “There is clearly a will from the French Government to have as many captives in France as possible.”
