French captive prospects will be looking at various factors when choosing a captive domicile other than just the availability of a competitive equalisation reserve, according to Laurent Bonnet, head of captive and alternative risk transfer solutions at Marsh France.
Before the French legislature passed the country’s long-awaited captive decree, there was a lot of discussion and focus on the terms of the equalisation provision.
However, Bonnet said the provision is generally not considered one of the key factors in a company’s domicile analysis.
“The equalisation provision is one specific aspect which on its own is not the key to the captive, it’s just one element of the captive domicile analysis,” he told Captive Intelligence.
“It’s not a revolution as this type of equalisation provision already exists in Luxembourg and has been in place for 40 years now. It’s not a big change and it just puts France on the same level as Luxembourg.”
Bonnet highlighted the pandemic as a key driver for France’s captive legislation, in order to help French companies improve their resilience by reserving funds to better face the financial impact of such events.
Oliver Wild, president of Amrae, also highlighted the Covid-19 crisis as an importance factor in helping the French government appreciate the need for greater resilience structures in an exclusive interview on the Global Captive Podcast earlier this month.
Further details of the country’s new captive regime were published in June, including confirmation that a 90% equalisation reserve can be utilised by captive reinsurance companies.
Bonnet said when he has discussions with a company’s tax officer in meetings with clients, they realise that tax is a very limited topic and “it’s not a critical element in the domicile analysis”.
“There’s so many considerations for a group that has billions in turnover and when compared to the group, the size of the captive in quite limited and there is so much tax consideration that the equalisation provision is a small part of the global analysis,” he explained.
Bonnet revealed he is aware of some French captives that might not use the equalisation reserve as it is not compulsory like it is in Luxembourg.
“It is my understanding that some French captives might not use the equalisation reserve as for their tax officer it doesn’t make sense at the captive level,” he said.
Bonnet said one important element for prospective French captive owners is being able to set up a captive at the same address as the headquarters of the company.
“It’s much easier for all the C-suite, or the head of the operation department, or the people involved in the risk to be part of the refinancing vehicle than having a captive based elsewhere,” he said.
Two new captives have already been formed in France this year, Limagrain and Naval Group having applications approved in June, while two new captives were formed in 2022, before the new legislation was in place.
Bonnet said that there is a lot of interest in captive formations in France, “but I don’t know how many will move to the second stage of applying for a licence”.
“There is a lot of expectation from smaller companies thinking that it’s going to be the solution of every issue, but in the end it’s just a self-insurance vehicle,” he said.
He noted that we could expect seven new captives this year and around the same number next year.
“So, we should reach 30 captives in the coming years,” Bonnet added.