French government plans to make France a more attractive jurisdiction for captives

The French government plans to make the country a more attractive jurisdiction for captives, as risk managers turn to alternative risk transfer vehicles to mitigate the effects of the hardening insurance market. The announcement was made on the final day of the AMRAE conference. It comes at a time when a growing number of companies are expected to boost alternative risk transfer capabilities to counter higher prices and capacity constraints that are spreading across the traditional insurance market. In a session on the final day of AMRAE’s annual risk management conference, Lionel Corre, deputy director of insurance at the French Treasury, said it is unacceptable that France hosts just four captive companies, while its neighbour Luxembourg has several dozen owned by French firms. “We believe that captives have a future,” Mr Corre said. “That is why we are working today with AMRAE and companies to relocate their captives to France.” He did not announce any particular measures to achieve this goal but said the issue is on the French government’s agenda. Mr Corre made the statement during a roundtable about the hardening insurance market and its consequences for French buyers and underwriters. Participants said mounting capacity restrictions and price hikes will likely drive buyers to look for alternative ways to reduce the role of traditional insurance. “It is important to keep in mind that if the current adjustment is too violent and, above all, if insurers stop doing their business, which is to help the sharing of risks, the market will find other solutions,” said Gilles Beneplanc, CEO of broker Verlingue. “Insurance is only one element of risk management,” he added. The hardening insurance market also means that buyers are being forced to accept higher retentions, which is an area where captives can play an important role. Hervé Houdard, CEO of broker Siaci Saint-Honoré , therefore welcomed news that captives may become more viable in France. “Insureds are being forced to increase their retention policies and will create or reactivate their captives… I am delighted then to hear this news [from the French government], as companies will finally have the option of choosing French solutions [for captives],” he said. Mr Houdard also criticised the way in which the insurance sector has approached the hardening market. “Even good risks have been penalised and that is not acceptable,” he said. AMRAE president Brigitte Bouquot has also bemoaned the fact that buyers have faced arbitrary capacity reductions and price increases, with insurers acting “irrationally”. But during the roundtable, Florence Lustman, president of the French insurance association FFA, denied accusations of irrational behaviour. She said the market correction is due to a combination of factors such as years of softening, an increase in claims and the impact of low interest rates hampering insurers’ investment returns. She noted, for instance, that fire losses alone have increased by 74% in France over a four-year period, closing 2018 at €733m. Nat cat losses have risen from €1.2bn a year in the late 1980s to an average of €3.2bn between 2015 and 2018, Ms Lustman added. She also noted a relaxation in loss prevention policies adopted by companies, despite the best efforts of risk managers. “We have observed that inspections at companies have dropped considerably,” Ms Lustman said. “They were 29,000 in 2009 and 19,000 in 2018, even though the number of facilities has increased.”

French government plans to make France a more attractive jurisdiction for captives

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