Self-insurance is gaining traction among French companies like La Poste and L’Oréal as they face difficulties with traditional insurance. This strategy allows firms to set aside profits for future claims through captive reinsurance companies. The sector is witnessing growth, particularly in logistics and aerospace, despite regulatory minimum capital requirements. Self-insurance offers flexibility, lower costs, and favorable tax conditions, making it attractive compared to international systems. There is potential for more captives to return to France, with upcoming reports expected to assess the impact of tax benefits.
Advantages of Self-Insurance for Businesses
Companies such as La Poste, Orange, Dassault, and Veolia are increasingly turning to self-insurance in France as they face challenges in securing traditional insurance coverage. This innovative approach enables businesses to allocate a portion of their profits to prepare for future claims, a method that has gained legal support over the past year.
The trend has seen the number of self-insuring companies nearly double since last summer, with notable names like Chantiers de l’Atlantique and L’Oréal joining the ranks of those already utilizing this strategy. This approach involves establishing a dedicated subsidiary known as a ‘captive’ reinsurance company. The formation of the French Federation of Corporate Captives (FFCE) marks a significant milestone, celebrating its first anniversary recently.
According to Brigitte Bouquot, president of the FFCE, captive reinsurances serve as the “foundation of global risk management and financing.” She emphasized the growing presence of captives in France, stating, “The rise of captives in France is unfolding before our eyes.”
However, Jean-Paul Faugère, vice-president of the Prudential Control and Resolution Authority (ACPR), noted that France still has room to grow in this area. He mentioned that there are several applications under review in addition to the 17 that have already received approval, alongside the recent release of a comprehensive information guide.
Sectors such as logistics, transportation, timber, aerospace, and agri-food are particularly benefiting from captive reinsurances, especially as they have faced rising insurance premiums and the withdrawal of traditional insurers.
The Value of Flexibility and Internal Expertise
Veolia’s Secretary General, Helman le Pas de Sécheval, highlighted the unique advantages of captives when he stated, “The captive provides us with flexibility and responsiveness that traditional insurance solutions cannot offer.” He explained that this method allows companies to swiftly adjust their coverage in line with changing needs and risk profiles, while also fostering valuable internal expertise that enhances the entire organization.
Mazars, a consulting firm, points out several benefits of self-insurance, including a “favorable tax framework,” the ability to cover challenging or uninsurable risks, and the potential for reduced insurance costs.
Despite the advantages, the minimum capital requirement of 1.3 million euros set by regulators can deter smaller enterprises from pursuing this option.
Insurers tend to have a more favorable outlook on companies that utilize captives, as they are perceived to be more committed to implementing preventive measures that can lower claim frequencies. Some major insurers, like Axa, have even introduced tailored support services for the creation and management of captives.
The potential for an increase in captives exists if French companies that currently maintain captives abroad—many of which belong to the SBF 120 index—decide to bring them back to France.
Since last year, the French self-insurance system has become significantly more attractive, particularly concerning taxation. Jean-Paul Faugère noted that it now stands on par with other international systems that have historically benefited locations like Luxembourg, Ireland, Malta, or Bermuda.
It is somewhat paradoxical that most existing captives are established outside of France. As discussions about transferring these operations back to the country gain momentum, there is a growing anticipation from regulators. Broker Diot-Siaci reports that they are assisting several clients in exploring this transition.
Looking ahead, the landscape for captives may evolve further with an upcoming report set to be released next year. This report will evaluate the societal costs and benefits associated with the tax advantages that self-insurance currently enjoys.