For FYs opened as from 1 January, 2023, groups have the possibility to set up a captive reinsurance company in France whose purpose is to exclusively reinsure the own risks of the group. For the time being, only risks of a given nature incurred by non-financial groups are concerned.
For these non-financial groups, the list of the eligible risks is broad enough however to include all the major risks incurred by large groups with respect to their business (liability, cyber-crime, natural catastrophes, pandemic…) and to mutualize these risks into the captive before finding for each or several of them an “appropriate” insurance coverage (extent and pricing) from the market. It is expected that within a near future, the need for a captive company will be increasing and that this tool will not be used only by very large groups but more and more also by groups of an intermediate size.
The usual scheme may be summarized as follows:
Before 2023, the set-up of a French captive reinsurance company was theoretically possible but onerous. Most of the French large groups having a captive had set it up in countries like Luxembourg, Ireland or Malta where the tax regime of the captive was favorable and the regulator welcomed this type of companies. Since 2023, France has been eventually inspired by these other EU Member States and the regulatory and tax regime of the captive have been significantly improved.
In particular, a French reinsurance company is entitled to book for a new technical reserve called “provision pour resilience” which allows the French captive to pay a low amount of corporate income tax and maintains therefore a significant net equity which can be used as a buffer if a significant business risk occurs (for the part of the risk which is retained by the captive). The regime of the “provision pour resilience” is pretty similar to the one of the “provision pour fluctuation de sinistralité” existing in Luxembourg and which is well known by the risk managers.
Many European groups having a significant presence in France may also have an interest to use a French reinsurance captive by preference to the usual ones referred above because it is easier to manage the captive with in-house people and to avoid that the competent tax authorities challenge the captive for not having a sufficient substance.
Fidal was honored to be involved in the conception of this new regime which turns out to be attractive notably to so-called ETI (intermediate size companies in France) who did not set up a captive before. With our strong expertise on insurance and reinsurance, we can assist on regulatory, legal and tax aspects of such a captive.
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