Europe, home to many of the world’s leading financial centres, has yet to fully capitalise on its potential in the captive insurance market. Experts explore strategies to unlock the continent's untapped potential for growth in captive
Over the last 50 years, the insurance industry has undergone seismic shifts, yet one constant remains — the robust expansion of captive insurance. In the face of financial upheavals, shifting global economies, and the rise of new risks, captives have demonstrated their value as a strategic risk management tool for businesses across various sectors.
In Europe, domiciles such as Guernsey, Luxembourg and Malta are becoming increasingly attractive, with these countries hosting a significant portion of Europe’s 670 captives. Companies operating in these jurisdictions benefit from the ability to write directly across the EU.
Guernsey leads the way with its flexible, proportionate regulations and rapid setup times, making it a preferred choice for captives. Luxembourg and Malta also play key roles, each offering regulatory environments that appeal to varying business needs. However, cultural preferences, solvency requirements, and regulatory frameworks shape domicile decisions more than just taxes. Emerging domiciles like France and Italy are entering the fray with new legislation, aligning themselves culturally and regulatory-wise to attract captives.
Despite its promise, Europe remains under-represented, hosting just 11 per cent of the world’s captives, while the US dominates with more than half of the global market, followed closely by North American offshore jurisdictions like Bermuda, the Cayman Islands, and Barbados. The potential of the Old Continent remains largely untapped, leaving a significant opportunity for growth and development in the European captive insurance space.
Established captive hubs
In the first eight months of 2024, captive insurance growth surged by five per cent, continuing the strong momentum seen in recent years. Peter Child, CEO of SRS Europe, attributes this to the hardening insurance market that began about four or five years ago. “The renewed interest in captives has remained steady,” he explains.
Although Europe does not match the growth rates of the US or North American offshore markets, the landscape is more complex. Many European captives, particularly in Guernsey, operate through protected or incorporated cell companies, so the real numbers are likely higher. "Though Europe’s captive market is smaller, some captives, especially within the EU, manage significantly higher gross written premiums and assets than their counterparts in offshore domiciles," Child adds.
Guernsey continues to stand out as Europe’s largest captive domicile, closely competing with Luxembourg depending on the metrics used. “Guernsey's dominance is no accident,” says Child.
Since introducing captive-specific legislation in 1983 and pioneering the world's first protected cell company (PCC) legislation in 1997, Guernsey has maintained its lead through a flexible, proportionate legal framework.
These regulations are critical in attracting businesses in hard markets, offering advantages such as lower capital requirements and swift setup times. Child notes that the pre-authorisation regime for cell companies in Guernsey enables the setting up of a captive within two to four weeks — a speed unparalleled in Europe.
Because the island is an offshore jurisdiction outside the EU, it has greater freedom in tailoring regulations to captives. EU domiciles benefit from passporting risks across member states, but they must comply with standardised rules that may not always cater to the captive industry. This gives Guernsey a competitive edge, allowing it to offer a regulatory approach designed specifically for the unique risks captives face.
Meanwhile, Malta, after joining the EU in 2004, sought to create a legislative framework that aligns with EU regulations while maintaining flexibility akin to non-EU regimes. “Drawing on expertise from Guernsey, Malta developed its insurance market, becoming the only EU country with PCC legislation similar to Guernsey's. This allows for flexible options such as setting up captives within cells and establishing dedicated fronting cells for both insurance and intermediation,” Child notes.
While Malta's regulator is approachable, regulatory turnaround has historically experienced delays, a common issue across the EU due to ever increasing and complex regulatory environments. However, Child observes that the regulatory environment is improving, particularly in terms of proportionality in applying captive regulations.
Luxembourg, another major hub, has its own distinct advantages. “Luxembourg is the largest EU reinsurance domicile and has a deep infrastructure of insurance professionals, making it a key player in the market,” Child says.
One of Luxembourg’s key features is the equalisation reserve mechanism, which delays profit recognition on underwriting — a draw for many clients, particularly from German, French, and Spanish markets. Nevertheless, setting up and managing a captive in Luxembourg comes with higher costs due to the complexities of navigating the EU's Solvency II framework.
Selecting a European domicile
Marine Charbonnier, head of captives and facultative underwriting, APAC and Europe, AXA XL, elaborates on the factors to consider when considering European domiciles for businesses.
“There are several criteria that come into play when it comes to choosing a domicile for a captive.
Some of the most important are the regulator's responsiveness, transparency and stability around the regulation and its requirements, corporate governance requirements, and expertise and support in that domicile.”
Tax efficiency and compliance are also critical considerations in domicile selection. According to Charbonnier, companies considering setting up a captive often face the challenge of satisfying regulatory, accounting, and tax requirements, which they may find unfamiliar and intimidating.
“It is our role, as a fronting partner, to make sure that captive owners have the right people in front of them to answer their questions, and access to the information and data they need, when they need it.
"We are here to facilitate the sharing of best practices in addressing the challenges and needs of the captive and its group. In my experience, and certainly for the clients we support, accounting and tax efficiency is not a decision factor when it comes to creating a captive, although it sometimes helps and can be a factor in the choice of domicile.”
Karl Johan Rodert, group director of captive and insurance at Autoliv, adds to this perspective by reflecting on the post-Solvency II landscape, which initially saw many smaller captives close due to increased regulatory burdens.
“The threshold for keeping or starting a captive became higher due to the significantly increased reporting and administrative work,” Rodert explains.
However, as the market levelled out and managers adapted to the regulatory demands, the environment became more manageable, and updates to Solvency II — which introduced greater proportionality — have improved conditions for captives.
“The tide has turned,” he says, with more captives now
being formed.
Rodert also highlights the evolving landscape for domicile choice, pointing out that France and potentially the UK are emerging as favourable locations due to positive regulatory attitudes. Traditional domiciles like Malta and Luxembourg continue to attract captives, thanks to their established infrastructure and supportive regulators.
He observes that one of the aims of Solvency II was to standardise regulations across different jurisdictions, but its interpretation has varied from country to country. "It seems the interpretation of Solvency II was quite different in different countries, thus still keeping the variation," he says.
Despite this, he believes the situation has generally improved over the last decade. “Much of this progress is thanks to the Federation of European Risk Management Association's (FERMA) work in lobbying for better proportionality in Solvency II regulation,” Rodert adds.
When it comes to tax efficiency, Rodert notes that the differences between EU countries have largely diminished. “I know many companies in Sweden that used to have captives in 'tax-efficient' countries have moved their captive domicile to Sweden over the last decade or so,” he says.
However, compliance remains a key factor, as EU regulations continue to impose heavy reporting and administrative burdens on captive owners. This, Rodert explains, "makes compliance a large factor when choosing a domicile."
He also underscores a trend in the Nordics, particularly Sweden, where companies are now considering the reputational impact of their domicile choice.
"Choosing a domicile purely for tax reasons can appear to be tax avoidance, which could damage a company's reputation," Rodert notes. This concern encourages some companies, particularly in France, to consider moving captives back to their home country as domestic regulations become more favourable.
Building on the discussion of regulatory and compliance challenges, Child highlights the additional complexities captives face when underwriting third-party, unrelated business in European domiciles. He notes that regulations differ significantly across jurisdictions, making each domicile unique in its approach.
“The topic of underwriting third-party, unrelated business in
European captive domiciles is complex,” Child explains, emphasising that these variations further complicate the decision-making process for companies as they navigate Europe's diverse regulatory landscape.
Unlike in the US, where writing for private insurance or variable universal life (VUL) captives might be irrelevant, European captives face different rules and definitions.
The criteria for what qualifies as ‘captive business’ — particularly ‘pure captive business’ — can vary widely, with pure captives typically writing only first-party risks.
"The definition of first-party risk can range from covering the property risks of the shareholder to those of affiliated businesses," Child adds.
For companies that qualify as pure captives, proportional legislation applies, including capital and reporting requirements.
However, captives classified as commercial entities face stricter regulatory standards, creating a need for careful consideration when choosing a domicile.
Boom time for captives
As the European captive insurance market evolves, several key domiciles — France, Italy, and the UK — are experiencing a surge in interest, driven by a broader shift toward onshore captive domiciles.
This mirrors a trend seen in the US over the past decade, where major financial hubs introduced captive-specific rules to encourage local establishments.
Child notes that this movement toward onshore domiciles is reshaping Europe’s captive market, with countries like France and Italy taking the lead.
France made a significant move in early 2023 with the introduction of new regulations that simplify the process of establishing captives, especially for mid-sized businesses.
“By adopting elements of Luxembourg’s regulatory framework, including equalisation reserves, France has created an efficient and effective captive regime,” explains Child. These changes led to the licensing of six new captives last year, with more expected in the current and upcoming years.
Historically, smaller businesses found it inefficient to establish captives, but France’s new approach has made the model accessible to a wider range of companies. France has also made no secret of its ambition to re-domicile captives within its borders, driven by the need for increased oversight. "France wants to bring captives' activity and assets back onshore, in part in order to more closely regulate their operations," Child says.
In this regard, Charbonnier further comments: “We have seen growing interest among European risk managers for onshore captive solutions, driven by a desire from some organisations to domicile their captive operations closer to their corporate headquarters.
The recent changes in France at the beginning of last year have made the country a more attractive option for French companies looking to set up a captive or redomicile. This is likely to expand the scope of eligible companies and make captives in France more accessible to medium-sized companies.”
Among the rising domiciles in the European market, Italy is quickly gaining traction as a key player. A significant development came when Strategic Risk Solutions (SRS) partnered with the Italy-based Strategica Group to launch SRS Italy in September, the first specialised firm dedicated to providing insurance management services for captives and reinsurance entities in the country.
In February 2024, Italy registered two new captives, signalling the country’s growing potential.
Child notes that earlier this year, a notable captive, previously domiciled in Ireland and the Netherlands, returned to Italy, with another following shortly after.
With anticipated captive-specific legislation on the horizon, Italy is gaining momentum as an attractive domicile, offering new opportunities for businesses looking to enhance their risk management strategies in Europe.
The UK is also in the race to push for captive-specific legislation, led by the London Market Group. Industry players remain hopeful despite the uncertainty of the government's potential to advance these efforts.
“The UK could see significant developments in its captive market if legislative advancements materialise,” says Child, pointing to London’s potential to establish itself as a leading captive domicile.
Looking ahead, the future for captives in Europe appears increasingly promising. Rodert predicts: “I can see an easing of the European domicile market when it comes to regulation, and I hope that it will become more attractive for companies to start captives."
He believes that as regulators recognise the benefits of captives as effective tools for risk transfer and management, the bar for establishing them will lower. "We could see many more companies starting and using captives — similar to the US," he says. That would be tremendous progress for Europe in this area,” he adds.
Charbonnier shares a similarly optimistic outlook. She highlights the maturity and sophistication of the European captive market and expects it to continue growing. “Ongoing challenges facing the (re)insurance market, including heightened natural catastrophes, ransomware attacks, and social inflation, are not going away anytime soon,” she says.
According to Charbonnier, the evolving risk landscape and the increasing relevance of emerging and developing risks will only strengthen the role of captives in the long term.
She also anticipates strong continued interest in captives as companies look to re-domicile and expand their captive use to finance higher retentions. “I expect more captives to be established as owners add new lines and adjust to current market conditions,” she says. In this changing environment, companies will be looking to finance group retention, driven both by market dynamics and a commitment to promoting effective risk prevention policies.
However, Charbonnier emphasises the importance of reducing the administrative burden on captives, particularly to allow them the flexibility to adjust their underwriting in response to market constraints.
"It would be useful not only to reduce the administrative burden, but more importantly to allow captives to adjust their underwriting as much as possible on the basis of their own risk and solvency assessment (ORSA) exercise,” Charbonnier states.
As Europe’s captive insurance market continues to evolve, the consensus among industry leaders is clear: the future holds enormous potential for growth, innovation, and a more streamlined regulatory environment that could usher in a new era for captives on the continent.
