Sunday, October 1, 2023

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French government publishes captive decree, equalisation provision details

The French government has confirmed the details of its much anticipated equalisation reserve, publishing a decree that states the provision can reach 90% of the technical result within 10 times the minimum capital requirement (MCR).

An equalisation provision is effectively a deferred tax, which allows captives to build surplus for future claims and build resilience.

The country’s risk management association, Amrae, along with parts of the captive market in France, has lobbied hard for the inclusion of an equalisation provision that is comparable to Luxembourg’s.



The amendments to the General Tax Code state: “The annual allocation to the provision provided for in II of Article 39 quinquies G of the General Tax Code is limited to 90% of the amount of the profit resulting from the sum of the technical profits associated with each category of risk concerned.

“The total amount of this provision may not exceed ten times the average amount, over the last three years, of the minimum capital required provided for by thearticle L. 352-5 of the insurance code.”

Captive Intelligence has reported extensively on efforts to introduce a competitive captive regime which will appeal to French businesses struggling to cope with a prolonged hard commercial market.

The French Prudential Supervision and Resolution Authority (ACPR) issued its latest captive licence to multinational dairy company Lactalis in December, and we understand a captive for majority state-owned Naval Group is next in line.

The government decree, published 7 June, defines the ceilings and accounting rules for an equalisation provision which is now established in the insurance and general tax code for captive reinsurance companies.

The amendments come into effect immediately for fiscal years beginning on or after 1 January, 2023.

Captive Intelligence reported in May that the French market’s success in lobbying for a fit-for-purpose captive regime could prompt a “domino effect” across Europe with similar efforts in Italy, Spain and the United Kingdom at various stages of progression.

Franck Baron, president of the International Federation of Risk and Insurance Management Associations (IFRIMA), said it had been a landmark achievement by AMRAE.

“I think it has been a fantastic and outstanding achievement,” he told Captive Intelligence at RISKWORLD in May.

“AMRAE did a superb job and being very close to a lot of associations, maybe one of the most outstanding achievements from an association over the last few years.”

Dirk Wegener, president of the Federation of European Risk Management Associations (FERMA), said he felt the pandemic had forced governments and companies to re-assess how they improve resilience and the role of insurance and captives had come more to the fore.

“Our member association AMRAE was obviously successful in convincing the French government that captives can be a tool and add to societal resilience by helping corporates to at least do some kind of a financial risk management, and that’s a positive sign,” Wegener added.