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French equalisation provision one of several considerations for captive prospects – Laurent Bonnet

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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.

NRRA criticises Nevada Bill, seeks dialogue with Commissioner

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New Nevada legislation, which disallows liability insurers from using eroding policy limits, which reduce policy limits by defence fees and costs for all insurance companies in the state, has been criticised by the National Risk Retention Association (NRRA).

Policies likely affected by the new law, and related cost and unavailability concerns, include D&O, cyber, fiduciary, errors and omissions, general liability, excess, personal liability, and possibly other policies – including property.

“This legislation will be cause for concern not just for risk retention groups, but also for the entire insurance industry,” NRRA said.

Assembly Bill 398, sponsored by the Nevada Justice Association passed by a vote of 19 to 1 before the Senate, and will become effective 1 October, 2023.

NRRA said it will have more to report on the Bill after communications with the Commissioner and after it has followed-up with a number of the other industry associations that are contemplating action in response.

Anthony Liolios, government relations and PAC specialist at Lockton, said numerous business and insurance industry groups have warned the Nevada Governor and Insurance Commissioner that the new law will make liability coverage unobtainable due to unavailability or excessive cost.

“It remains uncertain how exactly the new law will apply,” Liolios said. “The broad language in the Bill and legislative history suggest a wide array of policies are subject to the DWL prohibition.”

Liolios noted that Nevada’s Division of Insurance has been asked to exempt surplus lines policies.

“Such an exemption could result in availability of coverage options even if that coverage is still more expensive than what is currently available,” he said.

Market hedging, non-aviation risks driving captive conversations among airlines


  • Profile of all-risk, hull war make captive utilisation unsuitable for most airlines
  • Broader business risks, for larger airlines, can make captive feasible
  • Internal buy-in and capital commitment common stumbling block for captive projects
  • Third party, customer lines a profit opportunity for airline captives

Captive formation activity has been slow going for airlines, with large, established carriers benefitting from long-term utilisation but entry to market presenting significant obstacles. There are signs, however, that new formations could be around the corner.

While it is not uncommon for aviation companies to have captives, a large proportion have utilised them to write non-aviation risks.

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SRS Luxembourg appointed manager of DEME Group captive

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SRS Luxembourg has been appointed captive manager for DEME Reinsurance SA, providing all-inclusive management and consulting services from 1 July, 2023.

DEME Reinsurance was originally established in 2011 and is owned by DEME Group, a large contractor in offshore energy, environmental remediation, dredging and marine infrastructure.

“We are delighted to work with SRS going forward and together further develop the DEME captive,” said Lodewijk Beeckaert, DEME’s insurance director.

The company also engages in offshore wind, marine infrastructure, green hydrogen, and deep-sea mineral harvesting.

“We are delighted to start providing all-inclusive management and consulting services to the DEME Group,” said Maxime Schons, SRS Luxembourg managing director.

“Deme Reinsurance is the typical captive we love to work with, because key concepts are well captured: risk diversification, long-term captive optimization, and risk financing planning, use of technology, overseen by talented people.”

Strategic Risk Solutions opened its Luxembourg office in August 2020, led by Brian Collins and Schons.

AM Best affirms rating of Grupo de Inversiones Suramericana captive

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AM Best has affirmed the financial strength rating of B++ (Good) and the long-term Issuer Credit Rating (Long-Term ICR) of “bbb” (Good) of Bermuda-based Sura Re.

Sura Re is the wholly owned captive reinsurer of Suramericana S.A. (Sura), which in turn is 81.1% owned by Colombian financial services conglomerate Grupo de Inversiones Suramericana S.A.

Sura Re participates in property business underwritten by Sura’s affiliates across Latin America to help the group achieve its goals.

The ratings reflect Sura Re’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM). The outlook of the ratings is stable.

In December 2022, Sura Re reported a positive net profit for the fourth consecutive year since its inception.

Operative performance was driven by technical results, backed by good underwriting practices and strong fee income.

AM Best said it recognises the greater relevance that Sura Re is aiming to achieve in Sura’s overall regional strategy, which is starting to be reflected with Sura’s expanded geographic scope.

During 2022, capital requirements continued to reflect higher premium risk as the company executes its strategy and retains a higher portion of risks.

AM Best expects Sura Re’s capital requirements to increase due to a larger deployment of its capital while supporting its current very strong level assessment of risk-adjusted capitalisation.

AM Best said the company’s asset-liability management follows a very conservative investment policy focused on maintaining liquidity to cover Sura Re’s obligations in terms of tenure and currencies.

The ratings agency also considers the company’s ERM practices as appropriate given the complete support by Sura’s expertise and management team.

Bring part of the third largest insurance group in Latin America provides flexibility in terms of growth and premium risk to manage its capital and return positions efficiently in the future.

“AM Best therefore considers operating performance to be adequate for the current ratings,” the ratings agency said.

“Negative rating actions could take place if the company fails to meet its financial performance objectives, with results that fall to a level that impacts capital, and therefore, its risk-adjusted capitalization, either by business decisions, importance to its financial group or deteriorating macroeconomic conditions.”

Joni Steffen appointed client services director in Artex’s Cayman office

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Artex Risk Solutions has appointed Joni Steffen as a client services director of its Cayman office.

Steffen will be responsible for overseeing Artex’s client relationships, leading strategic initiatives and managing the client services team in the region.

She will report to Suzanne Sadlier, managing director, Cayman Islands at Artex.

“Core to the Artex business strategy is a client-centric partnership built around trusted advisory and consultative support. That’s why Joni’s in-depth experience in all areas of insurance management make her the best person to co-lead our client services team in Cayman,” said Sadlier.

“Joni’s expertise is critical to our growth trajectory, with oversight of our clients’ needs and delivery of the most comprehensive risk management solutions and services available.”

Steffen has more than 17 years of financial services experience and has experience across several industries including group captives, MGA and fronted reinsurers, SPCs, long-term annuity, healthcare, legacy run-off solutions, casualty pooling, chemicals, pharmaceuticals and transportation.

Steffen joins from Aon Cayman where she has worked as a senior vice president and has also served as an audit manager for Grant Thornton.

She is also experienced in analysis of investment portfolios including private equity, hedge funds, derivatives and specialty finance lending. 

DARAG concludes two transactions with North American captives

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Legacy acquirer DARAG has concluded two transactions with undisclosed North American captive insurance companies.

The first transaction was completed in May, with the second concluded in June 2023.

“Our team has seen increased interest in North America for bespoke legacy solutions that enable insurers to achieve finality for their non-core books of business,” said Tom Booth, CEO of DARAG.

“We are pleased to be able to meet that demand and further develop our relationship with the US self-insured market. These latest transactions demonstrate DARAG’s ongoing commitment to our North American platform.”

The transactions have been written into DARAG Bermuda and offer full legal finality for the US workers’ compensation book of the latter and the US workers’ compensation and automotive liability books of the former.

Joel Neal, executive vice president of M&A at DARAG North America, said: “It has been a busy year for DARAG’s North American platform, and we continue to have a very active pipeline.

“These transactions, alongside the many others we have had in North America, demonstrate the growing demand for the solutions DARAG offers in the region.”

In April DARAG concluded an agreement between an undisclosed Cayman-domiciled captive and its Bermudian insurance carrier, DARAG Bermuda.

The agreement allows the counterparty to release capital back to members of the wider group.

Premium, cost allocation: The dismal science that pays dividends

David Stebbing is Senior Director for Strategic Risk Consulting and Risk & Analytics at WTW, based in the United Kingdom.
Ed Koral is Director of Risk & Analytics at WTW, based in New York City.

“I allocate, therefore I am.”  These words were uttered with gloomy resignation by a beleaguered risk manager. The lack of enthusiasm is understandable; it is hard to get jazzed about a process whose best result is often described as “making sure everybody is only a little unhappy”.

When a firm buys insurance via a centralized risk management function, it hopes to enjoy the economies of scale of the unified consolidated organisation. In fact, many captive insurers are used to facilitate an “internal risk pooling” function, in which the consolidated group accepts a larger firmwide risk retention, the business units take smaller individual retentions, and the captive insures the gap between the two.

Using the captive allows the organisation to harness the economic strength, size, and risk-taking ability of the larger combined group, while recognising the smaller risk appetites of the component business units.

Alternatively, the business units may be buying “ground-up” coverage from the captive, while paying an allocated share of the firmwide premiums and retained losses.

Actuarial consultants are often enlisted to model the risks and develop loss projections and even “premiums” within the risk retention layer, considering the many factors typically considered in an underwriting process: exposure, loss history, volatility, and other factors. Brokers may be enlisted as well, providing market indications for captive “infill” policies.



The benefits of centralized risk management can only be realized, however, when the firm-wide insurance premiums are allocated in a fair, equitable manner among the different component entities of that firm.

The allocation framework must address the needs of multiple stakeholders, including business unit managers, financial reporting and tax professionals, and individuals tasked with government contracting – as well as corporate risk management itself.

And the complexity builds. Allocation frameworks have multiple goals: all of them worthy, and many of them in conflict with one another. Think about this set of goals for an allocation system:

Considers loss history: Business units with favorable past experience should be rewarded, and those with poor experience should be surcharged.

Considers Exposure to loss: Business units need to be compared based on the relative “size” of their risks. While this is often measured in simple terms such as payroll, vehicle counts, sales or square footage, it is also often a complex question that must also consider underlying “riskiness” of the businesses, geography, or other considerations, especially with highly diversified firms.

Incentivizes Desired Behaviors: Business units that adhere closely to safety and loss prevention protocols should be rewarded, and those who lag behind should suffer negative consequences.  Other compliance areas to focus on include claims reporting deadlines and return to work practices.

Should produce better-than-market results: Business units should not be able to approach the insurance market on a stand-alone basis and improve on their allocated share of the firmwide policy.  This issue frequently arises with international operations and can prove challenging in diversified conglomerates where one subsidiary drives up the cost for the entire firm, or where one subsidiary is a stand-out performer in a group of otherwise average performers.

Supportable and repeatable: There needs to be sufficient reliable data to support the allocation approach, making similar calculations over multiple periods. Having a consistent approach to cost allocations from year to year also establishes credibility with government contract auditors who may be enforcing Cost Accounting Standards, as well as tax auditors.

Transparent and easy-to-understand: Stakeholders need to be able to comprehend the methodology used in the allocation calculations.

It is difficult if not impossible to create an approach that fully satisfies all the objectives. Above all, the allocation approach must be perceived as “fair,” so that each entity receives equal and non-preferential treatment.

This is important not only in preserving internal relationships and cooperation, but in satisfying the needs of external parties such as public entities, who may be paying “pass-through” insurance allocations as part of a contractual agreement.

Premiums invoiced by related-party captives often attract extra attention, and these parties will need to be satisfied that subsidiaries are not subsidizing one another at the government’s expense, and that premiums were developed using reasonable, actuarially sound methodologies.

There are numerous available tools for solving this riddle. One can create, with relative ease, an allocation spreadsheet that meets one or several of these objectives using relative weightings of exposure and/or loss experience, and some long division.

But this leaves behind some nuanced approaches that introduce real-world considerations such as minimum and maximum premiums, budgetary constraints of the subsidiaries, uneven and varying need for excess policy limits, acquisitions and divestitures, and new emerging classes of risk in which the firm has no meaningful track record.

One actuary suggested a capital allocation model that blends both average and marginal cost of risk capital for all subsidiaries into a single premium and risk allocation formula. Analysis for an organisation with ten business units would start with a single operation and then review the marginal risk created by including each additional business unit until all ten have been included – in every possible permutation. 

This results in over 3.6 million possible combinations – well beyond the capability of a spreadsheet program – but it also goes a long way to ensure that risks are allocated even-handedly. At this point, we have departed simple arithmetic and entered statistical modeling.

Nearly all risk managers interviewed on the subject agree on this: getting allocation right is a multi-year learning process that requires patience, consensus, feedback, adjustment and revision.

All agreed on the adage, “what gets measured gets done”. That is, individuals and even organisations will manage their activities to achieve the measurable targets that have been set for them, often with unintended consequences. Here are a few stories, and the lessons learned:

One risk manager interested in creating a reward and chargeback system based on loss experience realised that while the business unit had some ability to prevent workplace accidents, it had little or no ability to control the cost of those accidents once they occurred.

Basing an allocation on the total cost of claims seemed punitive, because the local management did not control claims once they occurred. As a result, the allocation system was modified to measure claim counts, rather than the total cost of claims.

Another risk manager, who was initially satisfied at creating an allocation and chargeback system that measured exposures, loss history, adherence to risk management protocols and return-to-work goals, eventually realized that the system was so complex and opaque that local managers did not feel they could control their outcomes. The calculations of the model needed to be simplified so that all could understand how it worked – so that they could manage to the desired outcome.

In still another case, the penalties for excessive claims activity were so severe that it led the local business units to avoid or delay reporting claims. In response, the system was amended to cap chargebacks and reward prompt claims reporting.

The design process is critical, and requires careful thinking, planning and collaboration.  It is essential to engage actuarial consultants and experts on government cost accounting, and it helps to seek involvement from internal parties responsible for reporting or analysing risk and loss information.

Buy-in from a wide cross-section of your organisation will improve the chances for success with the methodology selected. This includes people from accounting, legal, risk management, government contracting (as applicable) and business unit leaders.

These stakeholders should not only be involved in the development and selection of the methodology, but also in communication with the internal customers. And in that regard, support from the top levels of the organisation (e.g., Chief Financial Officer, Chief Risk Officer or even the Chief Executive Officer) will be critical.

The allocation methodology should be readily understood by the end-users: the people at the business unit who are paying the costs, and whose bottom line is directly affected by the allocation. If people cannot understand how their bill was calculated, they will be slow and resistant to accept the allocation approach. But know also that there is no single right way to allocate costs; so later, after you believe you have implemented the “perfect” methodology, be prepared to react to constructive feedback, making incremental adjustments as business conditions and objectives change.

While premium and cost allocation may appear at first glance to be a dismal topic, the benefit for the organisation is a network of incentives and rewards that move the company closer to its business and risk management objectives. It is important to invest the appropriate time and involve the right stakeholders and experts at the outset.  

And if you’re finding that the onus of performing allocations drives you to use existential language, remember that you do have the available tools to make this process be all that it can be.

Tennessee judge rules CIC Services not to be awarded attorneys’ fees in IRS case

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A Magistrate judge in Tennessee has ruled that CIC Services should not be awarded attorneys’ fees in its case against the Internal Revenue Service (IRS), arguing that the agency’s losing position was substantially justified.

A Bloomberg Law article reported that in siding with the IRS over the fees, Tennessee Magistrate Judge Jill E. McCook said the agency had not disregarded any binding court precedent when it maintained that the requirement did not have to go through a notice-and-comment process under the Administrative Procedure Act.

“The IRS therefore did not take a position that was ‘flatly at odds with the controlling case law’ but instead it ‘lost because an unsettled question was resolved unfavourably,’” McCook said.

The firm brought the case to challenge IRS Notice 2016-66, which required captives taking the 831(b) election and their insurance advisers to report on the transactions.

In a GCP Short episode released in March last year, three legal and captive experts from the US discussed the judgement from the District Court of Eastern Tennessee striking down the IRS’s controversial Notice 2016-66.

CIC Services LLC asked for the fees in the long-standing case that had also included a trip to the United States Supreme Court.

The company had highlighted the Equal Access to Justice Act as reasoning for being awarded the fees, as the Act provides parties who beat the US in a civil case with attorneys’ fees unless the government’s position was substantially justified or other special circumstances make an award of the fees unreasonable.

CIC Services agreed that the agency’s position that the suit was blocked by the Anti-Injunction Act was substantially justified, even though the Supreme Court sided with the firm in 2021, according to the IRS.

The IRS defended its justification for arguing that its reporting requirement did not need to be issued by first giving notice and responding to public comments, even though it lost on that point at the district court in 2022.

The final decision on awarding attorneys’ will be decided Chief Judge Travis R. McDonough at the US District Court for the Eastern District of Tennessee.

Captive Intelligence reported in April that the IRS has now proposed new regulations for micro-captives, which have divided opinion across America’s captive landscape.

Under the Notice, the IRS proposed regulations would see certain 831(b) captives deemed “listed transactions” and other micro-captive transactions labelled “transactions of interest”.

The majority of captives that record a loss ratio under 65% would be considered a “listed transaction”.

More than 100 comments have been submitted in response to the IRS latest proposed regulations, including from CICA, SIIA and the Oklahoma Department of Insurance.

The 831(b) Institute was launched at the of June in the US and has asked for clarity from the IRS around how it regulates micro-captives, arguing that it “unfairly” scrutinises them.

Guernsey makes strong start to 2023 captive activity

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The Guernsey Financial Services Commission (GFSC) has received 21 applications during the first six months of the year, eight of which were for captive licences.

The domicile remains a go-to jurisdiction for UK-based corporates, as well as a strong option for international businesses.

Guernsey added 12 new captives in 2022 while three captives surrendered its licence, taking its total number of captives to 201.

The start to 2023 suggests another strong year of new formations of both pure captives and cells.

“We have seen increased interest in captive formations since 2021 and that continues for firms that are having difficulty in placing their insurance programmes or when the cover they seek is not available,” the GFSC told Captive Intelligence.

If a company is looking to set up a single parent captive in Guernsey, the application can be processed by the GFSC in around four weeks from submission of a fully completed application. 

“We have a pre-authorisation scheme for captive cells which means that, within certain parameters, a cell can be formed at short notice by the insurance manager providing the Commission is advised within 14 days thereafter,” the GFSC said.

The GFSC said one of the biggest challenges that Guernsey faces as it aims to continue attracting new captive formations and maintaining its position as the biggest domicile in Europe is attracting and housing sufficient skilled staff.

“This is a matter for government but the Commission contributes to the debate when appropriate.”

As a means of combatting a potential talent shortfall, Guernsey launched a new, updated course in international insurance management in February.