Captives no magic wand for French risk managers

French companies considering setting up captives as an alternative for risks in which insurers have shown little, if any, appetite, have been warned that captives are not “magic tools” to solve all risk transfer challenges at an event in Paris.

But delegates at the first France Captive Forum, where established and new captive owners shared their experiences, were left in no doubt about the usefulness of the risk retention vehicles to strengthen risk management structures.

Orano Assurance et Réassurance, established as a captive of nuclear fuel cycle corporation Orano in Luxembourg back in 1991, was repatriated to France in 1999 to transfer risks linked to the nuclear industry. Ersida Ago, head of insurance at Orano, told the conference that one of the captive’s missions is to enable the company to place new risks in the marketplace.

“We started with property damage, and we have recently added liability for nuclear operators, contractors and transportation, as well as cyber,” she said. “Some years ago, cyber was a new risk and the captive answered to our necessity, but now we have withdrawn it from the captive as it is no longer a new risk for us.”

Ago said workers benefits is a potential area of expansion for captives. Risks where capacity is constrained in France, such as construction and motor fleet, are other possibilities.

François Beaume, vice-president of risks and insurance at electric parts group Sonepar, said his company’s captive has traditionally been used to place property risks, but has since evolved to include cyber and, more recently, motor liability in the US. The use of the risk retention tool continues to evolve and is now moving towards mitigating the impacts of climate change, he explained.

“Our captive is the entity that will structure, finance and organise, including from a supervisory point of view, the group’s prevention efforts in all its dimensions,” Beaume said. “Our climate adaptation plan is created, constituted, nurtured and maintained by the group’s captive.”

Delegates attending the first conference organised by captive trade association FFCE discussed how to use captives to manage difficult risks, such as contingent business interruption and those linked to compliance with new European rules, including the Corporate Sustainability Reporting Directive.

But delegates also heard that placing new risks in the market via a captive is complex, requiring particular attention to compliance details.

Identifying and modelling difficult risks, such as contingent business interruption, is a significant challenge for captives because they are in practice small insurance companies working in a highly regulated environment. Regulators will want to be assured that the methods used by captives to measure exposures and define reserves are sound, said Paolo Ribotta, CEO of Zurich France.

“The captive is not a magic tool,” Beaume said. “By itself, the captive is no good. It needs help with reinsurance, actuarial aspects and so on.”

Interest in French-domiciled captive companies has grown steadily since the government approved new tax and accounting rules for risk retention in June 2023. The conference, which attracted almost 200 participants, gathered several new French captive owners and companies weighing up the jurisdiction.

Sylvain Guiheneuf, senior vice-president of group risk management and insurance at aircraft equipment manufacturer Safran, said that one of the main reasons why his company decided to set up a French captive, which will gradually take over from its existing captive operations in Luxembourg, was to give the firm more control closer to home.

Ludovic Jung, head of group risks and insurance at shipbuilders Naval, added that the proximity to fronting insurers and the possibility of implementing French-style governance were decisive factors in choosing France as the domicile for his group’s captive.