Bouquot says new captive regime is a ‘game changer’ for French economy

The new legal framework in France for captives will be a “game changer” for French companies and the wider economy, a leading risk manager said at AMRAE’s annual conference in Deauville.

Brigitte Bouquot, the former president of French risk management association AMRAE, also said that local captives will enable companies to take more control of their interaction with the insurance market.

It is estimated that the creation of around 50 captive companies is underway in France, reflecting interest in the new framework that was approved in December by the French government.

It was the first captive legislation adopted by an OECD country since the implementation of the Solvency II directive in 2016.

Bouquot was speaking during a panel debate on the new captive regime. Earlier, representatives from the French Treasury stressed that their government was not targetting the repatriation of existing captives owned by French firms in jurisdictions such as Ireland or Luxembourg when writing the new rules.

But Quentin Guerineau, head of insurance companies and intermediaries at the treasury, said: “I will be very happy if it happens.”

Expert speakers at AMRAE’s conference noted that repatriating a captive is no easy task. They explained that there are many legal and tax implications involved in bringing capital held in other jurisdictions into France.

But the hope is that, over time, companies will make more use of French-based captive providers as contracts placed with their current captives run their course.

Optimism over the new risk transfer instrument is based on the widely held view that the new legislation is a simple and efficient tool that will be helpful to risk owners.

“It will enable companies to set up captives in France in an effective and attractive way,” Bouquot said. “It will be a game changer, an important development for risks, for companies and for the national economy.”

Alain Ronot, AMRAE treasurer of AMRAE and risk manager at a leading consulting firm, added that the new captive rules will help companies manage emerging and geopolitical risks, as well systemic threats such as cyber, in a more agile way.

But most of all, companies will be able to leverage knowledge on their own risks to obtain better protection and favourable conditions from the insurance market, he suggested.

“Companies must take back the control of their destinies when it comes to risk management and insurance,” said Bouquot.

But getting the new rules in place was not an easy process.

Discussions started in 2017 and gathered steam in 2019, when the French government increased tax vigilance on foreign captives.

The topic received a further boost when the Covid-19 pandemic struck. But political uncertainty about the outcome of the 2022 election, and the divided Parliament that followed that vote, raised fears that the project would be excluded from the 2023 Budget Law.

One of the major challenges was to convince members of parliament that captives will not be used as tax optimisation tools for big corporations.

Politicians also proposed that companies should only be allowed to place premiums into their captives equivalent to no more than 30% of their technical profits. They were finally convinced, however, to raise the limit to 90%, as proposed by market players.

Clement Denis, deputy head of insurance companies and intermediaries at the French Treasury, stressed that such limits were important to ensure France is a competitive captive jurisdiction compared to alternatives such as Luxembourg.

Financial companies were, however, excluded from the new framework because the government considered that they would struggle to differentiate between their own risks and those of their clients when deciding which to place in a captive.

Ronot remarked that there are already around 50 “very serious” captive projects being studied by French companies. “We expect to see several captives created by the end of the year,” he explained.

But some companies may well wait a while before they take the plunge. Christophe Doray, head of risks and insurance at catering group Sodexo, noted that his company has two captives – one in Ireland and one in the US. These allow Sodexo to transfer captive risk to both insurance and reinsurance markets. Doray said he wonders whether the fact that the French framework only allows reinsurance transfers may limit the scope of local French captives.