Market expertise playing catch up with French captive boom

The number of home-grown French captives has grown quickly since France adopted new rules a year ago and there are more in the pipeline, but there is room for improvement in the local captive marketplace and the approval process, experts told Commercial Risk Europe. They say that the market for services demanded by current and future captive owners in France remains a work in progress. Meanwhile, supervisory bodies are still learning how to deal with the proliferation of new reinsurance captives, they add. The new French accounting and tax rules for captives were approved in June 2023 and only really started to have an impact after last year’s summer holidays. And the positive impact of the rules, which brought the French regime closer to Luxembourg, is undeniable. Previously there were only half a dozen reinsurance captives domiciled in France but this number reached 18 by the end of July, when a reinsurance vehicle set up by telecom group Orange got the green light from ACPR, the insurance market regulator. Fresh captive owners include mail group La Poste, shipbuilders Chantiers de l’Atlantique and France’s professional football league, LFP. They joined a select group of companies that had captives in the country even before the new rules were approved, such as luxury group L’Oréal, utilities firm Véolia and aerospace company Ariane. And the numbers are set to swell further. At least seven other applications to set up French captives are waiting for approval from ACPR, including retail giant Fnac-Darty, construction group Vivendi and rolling stock manufacturer Alstom. Brokers and insurers also say that a growing number of firms are developing feasibility studies and consulting on the viability of joining the bandwagon. “Many companies now ask us about the pertinence of having a captive,” said David Vigier, the head of captive services France at HDI Global in Paris. “There has especially been [interest from] large mid-sized firms that would not have otherwise asked those kinds of questions.” But many experts feel that interest will increase further once the French captive market develops the same capabilities enjoyed in more established jurisdictions. To help with this task, France’s risk management association Amrae created a new trade body in November last year to gather captive companies and service providers. The goal is to work with companies, the market and the authorities to make setting up and managing a captive easier. The Fédération Française de Captives d’Entreprise, or FFCE, is chaired by former Amrae president Brigitte Bouquot and has a busy agenda. The organisation provides support to companies that are interested in creating their own risk retention tools, and is also in touch with the authorities to develop standards for captives applications that would streamline the process. “The goal of FFCE is to democratise the access to captives,” Bouquot said. Fulfilling that goal will clearly require the development of more services for captive owners and applicants, as the French marketplace remains less sophisticated than those in Luxembourg or Ireland. Some insurance companies like HDI Global, MS Amlin and Generali have recently strengthened their captive capabilities in Paris, but there is still a dearth of specialised expertise when it comes to captive management and actuaries, according to market sources. “The biggest players in the market are still reluctant to boost their activities in France,” Bouquot told Commercial Risk Europe. “But we are seeing some newcomers, especially among the big four audit companies, that are helping French companies to set up captives.” Sources say that the captive approval process could also be more efficient and simplified, so that the use of risk retention tools can spread across smaller companies. And that is why FFCE is helping ACPR draft a set of standards, which should be published in September, to smooth the process. The federation will also provide its government with information about the progress made since the new rules were introduced. The Finance Ministry will publish its assessment of the legislation early next year. “FFCE has been an interlocutor to the ACPR, thus providing the supervisor with a channel for dialogue with the captive market,” Bouquot explained. Boosting education and raising awareness about the use of captives and their relevance for companies is another task for FFCE. Approving the new rules took longer than the market expected because there were fears in political circles that they could be seen as a tax benefit for big corporations, not a popular thing among French voters. Another common misconception is the view that companies employ captive instruments to dodge their tax obligations. Making sure that such perceptions do not prevail has been among the main priorities of discussions between FFCE and other stakeholders. “We are working to show the political world and public opinion that captives are all about risk management, and that the new rules are not a gift for companies,” Bouquot said. That is one of the reasons why FFCE will host its first congress on 19 November about the captive market. Bouquot said the congress aims to gather the nascent captive industry as well as representatives from the political world and the market’s supervisory bodies. During the event, FFCE wants to push the message that captives are a valuable tool to boost the resilience of France’s economy and raise awareness among business leaders about the need to properly manage their companies’ risks. Bouquot pointed out that board members need to better understand how captives work and how they can take leadership positions in setting up their companies’ risk retention tools. “The work demanded to create a captive provides a valuable opportunity to get the c-suite involved with risk management,” she said. Another FFCE priority is to help companies understand the benefits of each captive jurisdiction. FFCE and Amrae have stressed that the goal of the new rules is not to bring captives based abroad back to France, but rather to make these vehicles a more realistic and affordable option for more companies at home. However, at least one firm, aerospace group Safran, is creating a French captive with the goal of transferring from Luxembourg. The emphasis of the market, in this case, is to stress that the creation of captives is a sophisticated exercise that must take into account different characteristics of the owner, and not only where its headquarters or main operations are located. For instance, Etienne de Varax, a senior advisor at HDI Global in Paris, said that, from the point of view of an insurer of large accounts, it does not make much difference whether a captive is set up in France or another trusted jurisdiction like Luxembourg or Ireland. “The main question for us is the quality of counterparty risk. What we want to know is whether the captive reinsurer is robust enough to meet its obligations towards us,” he said.

Market expertise playing catch up with French captive boom

Approval process needs refining as regulator drafts new standards

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