New captive regime welcomed as ‘game changer’ for French firms

Leading French risk managers speaking at the recent AMRAE conference welcomed the new legal framework for onshore captives in France as a “game changer”. Meanwhile, treasury officials gave further details on the rules and told delegates the government wants companies to use the provisions to help transfer cyber and other risks facing a capacity shortage in the tough insurance market. Clement Denis, deputy head of insurance companies and intermediaries at the French Treasury, explained that the new rules will allow companies to place reinsurance premiums up to 90% of their technical profit into captives tax free. Denis told risk managers gathered at Rencontres de l’AMRAE in Deauville earlier this month that this tax-free provision for reinsurance transactions is important to ensure France is a competitive captive jurisdiction. He explained that financial companies are, however, excluded from the new framework because the government thinks they would struggle to differentiate between their own risks and their clients when deciding which to place in a captive. Representatives from the French Treasury stressed at the AMRAE conference that their government was not targeting the repatriation of existing captives owned by French firms in jurisdictions such as Ireland or Luxembourg when writing the new rules. But Quentin Guerineau, head of insurance companies and intermediaries at the treasury, said: “I will be very happy if it happens.” Expert speakers at AMRAE’s conference noted that repatriating a captive is no easy task. They explained that there are many legal and tax implications involved in bringing capital held in other jurisdictions into France. But the hope is that, over time, companies will make more use of French-based captive providers as contracts placed with their current captives run their course. Optimism over the new risk transfer instrument is based on the widely held view that the new legislation is a simple and efficient tool that will be helpful to risk owners. Brigitte Bouquot, the former president of French risk management association AMRAE, said the new framework will enable companies to set up captives in France in an “effective and attractive way”. “It will be a game changer, an important development for risks, for companies and for the national economy,” she added. AMRAE treasurer Alain Ronot said the new captive rules will help companies manage emerging and geopolitical risks, as well systemic threats such as cyber, in a more agile way. But most of all, companies will be able to leverage knowledge on their own risks to obtain better protection and favourable conditions from the insurance market, he suggested. Ronot explained that there are already around 50 “very serious” captive projects being studied by French companies. “We expect to see several captives created by the end of the year,” he said. President of AMRAE Oliver Wild told his members that the implementation of new captive rules in France was “more than a victory” for the association. “It was a promise fulfilled,” he said. Wild said captives can now be at the heart of French corporate efforts to adapt to the changing economy and processes such as the energy transition. “(The captive) is not a tax optimisation tool, but a real tool to manage the risks that lie at the heart of governance… it is a dashboard for the company’s prevention and protection efforts,” said the risk manager at Veolia. But some companies may well wait a while before they take the plunge and set a captive in France. Christophe Doray, head of risks and insurance at catering group Sodexo, noted that his company has two captives, one in Ireland and one in the US. These allow Sodexo to transfer captive risk to both insurance and reinsurance markets. Doray said he wonders whether the fact that the French framework only allows reinsurance transfers may limit the scope of local French captives. Also speaking at the AMRAE meeting in Normandy, Martin Landais, deputy director in charge of insurance at the French Treasury, said that the country’s new captive framework gives companies “an essential tool” in an insurance market that has hardened considerably over recent years. It will improve the ability of French companies and the insurance market to fight against cyber threats, he suggested. Landais added that there is potential for French captives to help manage other exposures facing restricted insurance capacity, such as civil liability, natural catastrophes and transportation risks. He said the new rules had to overcome resistance in the French Parliament, not least because many politicians saw captives as tax evasion tools. Politicians initially proposed that companies should only be allowed to place premiums into their captives equivalent to no more than 30% of their technical profits. But they eventually relented and gave the green light to the 90% provision. “A captive actually permits keeping taxable income in France,” said Landais. “It will also push companies to have a better understanding of their risks.” Landais believes that France has managed to create a simple structure for captives that could be replicated by other European jurisdictions. He said the goal is not to compete with other jurisdictions or with the reinsurance sector. “We need all capacity available,” Landais stressed. He went on to list other efforts made by the French government to improve cyber resilience in the economy. Landais said the government wants France to become a leader in Europe when it comes to developing solutions for the cyber insurance market. The treasury department has recently created a working group to help promote more effective cyber risk transfer solutions for smaller firms and has invited AMRAE to take part in this group. And the French government recently formalised rules on the payment of cyber ransoms by insurers. According to these rules, insurers are allowed to make payments on behalf of their clients as long as the attack is immediately notified to the authorities. Landais stressed that the goal is to promote data sharing on hacker attacks and create a body of knowledge that will enable insurers to make more informed decisions about the coverage they offer. Combined with the new captive regime in France, these measures should provide French companies with much needed ammunition in their fight to better manage and transfer cyber risk.

New captive regime welcomed as ‘game changer’ for French firms

French Treasury urges companies to use rules to combat cyber risk

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