France and Lloyd’s set out their pitch for captive business

Europe’s captive market is set for new competition with the emergence of separate initiatives from Lloyd’s of London and France. Representatives from both Lloyds and the newly formed French Federation of Captives association were in attendance at the European Captive Forum conference in Luxembourg to explain and promote their respective offerings to an audience of captive owners and risk managers. Lloyds has had a captive before. In 1999 it licensed a captive for pharma company SmithKline. But when the company was acquired by Glaxo in 2001, the captive was folded and Lloyd’s captives proposition petered out. However, the subsequent growth in the captive market has led Lloyd’s to revisit the idea. “We asked captive owners what they were looking for and they told us three things – cost, control and capital,” said Tom Allebone-Webb, head of strategy & innovation, Lloyd’s. “I ask you to consider the fact that you won’t need fronting capital in most cases, and where you do, you are working with A-rated companies,” he said. “Because of Lloyd’s unique licensing arrangements, it means you can write business out of London in most cases, save for China and the EU, so you can avoid dual-fronting arrangements. The unique structure of the Lloyd’s market was explained by Allebone-Webb. “In a captive syndicate, there will be the member that provides the capital and is owned by the group, the syndicate which pools the risk and is owned by the group, and a third-party managing agent,” he said. Lloyd’s has no captive clients as yet, although Allebone-Webb expects to announce the inaugural client early in 2024 and is confident that more will follow. “A number of captives have been cautious about being the first captive syndicate but given that we expect the first one to be announced soon, I anticipate those fears will be eased and we will get over 100 captives,” said Allebone-Webb. The French effort to develop an onshore captive market began in 2016, said Francois Beaume, vice-president, risk and insurance at Sonepar, the France-based distributor of electrical products. “There was a lot of pressure from the French tax authorities on the French companies that had set up captives abroad.” "The main concern was that they were managing these captives from France rather than the domicile in which they were based,” said Alain Ronot, group risk and insurance director at CapGemini. There have also been some compelling market drivers for setting up an onshore captive regime – namely the hard market, increased deductibles and reduced capacity that meant many French companies were unable to get the coverage they needed. Furthermore, said Ronot, risk management associations such as Amrae were able to show to the French authorities that captives are a strategy risk management tool that can improve the sovereignty of the insurance coverage with French companies managing French captives. This led to the introduction of the French captive legislation in June. While this week saw the establishment of the French Federation of Captives, a sub-group of Amrae, where Ronot will serve as vice-president. “Before the law, there were just ten captives in France, now there are 14 and we soon expect this number to be greater than 40,” said Ronot. The developments were welcomed by Vincent Barrett, regional managing director at Aon. “We're agnostic where clients put their captives so these developments are fine with us. And if it means that the French authorities finally realise that captives are not nefarious tax vehicles but mature risk management tools, then that is a good thing." However, he did warn that any domicile looking to develop a captive market cannot simply copy other markets and must offer something unique. For example, Dublin is traditionally a direct writing domicile, Luxembourg has an equalisation reserve, Sweden has both direct writing and special reserving capability, while Malta is the only domicile in Europe with protected cell company legislation. “Clearly, European companies have been held back by the regulatory environment and Solvency II, so if this helps Europe to catch up with the US market, it will be a marvelous development,” said Barrett. The possibility of more legislation from onshore domiciles in Europe such as Italy, Spain, Germany and the UK has also been welcomed by captive associations within both Europe and the US. “It is absolutely positive,” said Udo Kappes, head of insurance at German energy company RWE and chairman of the European Captive Insurance and Reinsurance Owners Association. “The most compliant scenario would be to have the captive in your home country but that has not always been possible. “The French government spoke to a lot of captive owners before introducing new legislation, and more understanding of what a captive does can only help to grow the market,” said Kappes. “Companies don't always want to raise their hand and say ‘we have a captive’ and that is to our detriment," said Dan Towle, president of the Captive Insurance Owners’ Association. “So it is great to see onshore domiciles in Europe introducing legislation.” However, there was a word of warning for any domicile that believes there is an opportunity to lure captives to their shores with the promise of a light-touch regulatory regime. “Our mantra is ‘do it right or do not do it at all’”, said Towle. “Most companies are not looking to put their captives on the domicile of least resistance. They want to be regulated well.”

France and Lloyd’s set out their pitch for captive business

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