The potential introduction of protected cell companies (PCC) in Luxembourg would not be successful under the domicile’s current equalisation provision arrangements, according to Yannick Zigmann, managing director of Luxembourg-based Risk and Reinsurance Solutions (2RS).
Captive Intelligence reported in April that the Luxembourg regulator was open to introducing PCCs in the jurisdiction if there is industry demand.
Luxembourg’s equalisation provision is a key advantage and differentiator for the domicile, allowing captives to build up large reserves for future claims which are tax deductible, but it is unclear how this would work in a PCC structure.
Zigmann believes there would need to be more flexibility in how the equalisation provision is applied and utilised by cell companies, if at all.
“I am not sure PCCs will work with the equalisation provision system in Luxembourg,” he told Captive Intelligence.
“How can you share your part of your equalisation provision? I do not see how you can do it.
“Having a PCC is difficult, because this means there is something you do not have, you do not have the premium or you do not have the capital.”
Speaking in an interview on episode 82 of the Global Captive Podcast Valérie Scheepers, head of the non-life and reinsurance department at the Commissariat aux Assurances, said the onus was on industry to present a real business case so rules could then be developed.
Following Scheepers comments, some of the largest captive managers on the continent told Captive Intelligence that improved choice and competition by allowing protected cell companies (PCCs) in Luxembourg could create greater demand for cell solutions in Europe.
European captive demand
Zigmann indicated that although there is a lot of interest in captive utilisation in Europe, it can sometimes be difficult to convince the key stakeholders within a company that setting up a captive is a good course of action for the organisation.
“We sit beside the captive prospects during the feasibility study, and as all the other market players, we can tell them that we have good actuaries and, we are able to provide them a business plan for five years, seven years, whatever they want, but the real added value is to help them to convince the legal, tax, and finance departments, that we are on their side,” he said.
“This is the most difficult. Risk managers know exactly why they need a captive, but the tax guy doesn’t understand the rewards from having a captive, so you must be absolutely clear that it is not a risk.”
Zigmann told Captive Intelligence that 2RS currently manages 72 captives in Europe.
He said that one reason for the success of 2RS is because its business model allows it to go directly to prospective clients rather than using an intermediary.
Although 2RS is a subsidiary of Siaci Saint Honore Group, Zigmann stressed the two companies are separate entities when it comes to their day-to-day operations.
“Of course, legally our shareholder is a broker, but our activity has nothing to do with them,” he added.