Mounting calls for onshore EU captives despite hurdles

Several companies are now looking to establish captives in France following changes to the country’s captive laws, but calls for similar moves in other European countries are unlikely to yield quick results, according to brokers and captive managers.

Ferma president Dirk Wegener recently told Commercial Risk that following recent positive captive developments in France, other national risk management associations, including Igrea in Spain and Anra in Italy, have made it clear that they would like to see their authorities follow suit.

Wegener said that Ferma has been “actively involved” in facilitating dialogue with relevant captive parties in Spain and Italy, as well as France. He added that the federation would be “very open” to working directly with the European Insurance and Occupational Pensions Authority (Eiopa) to promote the development of a more captive-friendly environment across Europe.

Last year, France amended its captive law to allow the formation of reinsurance captives. Following the changes to legislation, onshore captives in the country will enjoy more favourable treatment for the 2023 underwriting year. Brokers and captive managers expect we will now see more new captives established in the country.

Some captives will consider a move back to the country, said Peter Carter, head of the global captive practice at WTW. “Onshore captives are more convenient and less politically sensitive than an offshore domicile at a time when more companies are focused on greater transparency and social and corporate responsibility,” he said.

Marine Charbonnier, head of underwriting, captives and facultative, for AXA XL in APAC and Europe, also believes that the recent changes in France have made the country an attractive domicile for captives.

“In France, the objective of [the French risk management association] AMRAE was to make a good environment that enables companies to set up new captives in France… We have been working with clients on new captives in France, including some that are awaiting approval,” she said.

Charbonnier expects other companies will look to set up onshore captives in Europe to strengthen governance and risk management. But local risk management association involvement would be key to the success of moves to explain the value of onshore captive legislation in other countries, she said.

“For clients thinking about a new captive, there is an argument for having the governance closer to the top management. The understanding of the captive is higher when you are closer, with a deeper dialogue on the strategy of the captive,” said Charbonnier.

Sweden, Switzerland and Germany already have onshore captive solutions, while Luxemburg, Malta and Dublin operate as offshore domiciles within the EU under Solvency II. Onshore domiciles in the EU typically have higher capital costs under Solvency II, and less favourable tax regimes when compared with offshore domiciles.

“Companies will look at what is happening in France, and I believe there is some lobbying going on for captive legislation. But it will take some time, and would be an evolving process. So it’s more a case of watch this space,” said Robert Geraghty, senior vice president for Marsh Captive Solutions.

“There has been growing interest in France in onshore captives with the new rules coming in. That has been a great innovation. There is interest in the UK, Spain, Italy and Germany. But while there might be interest, companies are unlikely to consider them until there are specific captive rules and legislation. I would not expect to see new captive legislation in other European regions soon. It is unlikely to happen quickly,” he added.

Nick Frost, president of Davies Captive Management, is also circumspect about the prospects for immediate changes to captive legislation in Europe. “I am not aware of other jurisdictions following France as yet. EU common rules would make it difficult to match the benefits of an offshore domicile like Bermuda or Guernsey,” he said.

According to Richard Tee, managing director of Captive Management at Davies Captive Management in Guernsey, the UK has been talking about developing an onshore captive market for over 20 years. But he said it is difficult for a jurisdiction like the UK to make big rule changes.

“It would be interesting if the UK regulator was prepared to amend insurance company requirements to make captives more attractive. However, while some companies would be large enough to consider an onshore captive, what would they gain from what they already have in an offshore structure?” Tee said.

Wegener said the interest shown in captives during the recent tough market should really not come as a surprise. He believes the action taken in France is a really positive development that could be followed elsewhere in Europe.

“Captives provide a highly efficient risk management and financing mechanism for a growing number of companies, and it is not surprising that more countries are looking to broaden their appeal as a domicile for such vehicles,” he said.

“In the case of France, the country has introduced a series of fiscal measures that are beneficial to captives and has not directly amended its insurance regulations. We see this as a positive development and believe that, from a general standpoint, there is a strong argument for adjusting fiscal policies to facilitate the establishment of captives across the EU marketplace,” added Wegener.

The Ferma president pointed out that the federation has long advocated for regulatory changes conducive to captives, and plays an active role in supporting its members in this important area.

“Most recently, for example, we pushed for the fair tax treatment of captives, and Ferma is also actively involved in facilitating dialogue with relevant captive parties in France, Spain and Italy. We would be very open to working directly with Eiopa to promote the development of a more captive-friendly environment across Europe,” said Wegener.