Luxembourg nonetheless a compelling jurisdiction for reinsurance captives – Hogan Lovells

Insights from world regulation agency Hogan Lovells reveal that regardless of elevated competitors and worldwide reforms, Luxembourg nonetheless has compelling benefits that give it a aggressive edge within the captive reinsurance market.

Luxembourg stays the biggest captive reinsurance market within the European Union, with most reinsurance firms domiciled there being captive-type, the agency mentioned. These firms, subsidiaries inside a bunch, usually reinsure the dangers of different group firms, with these dangers channeled by way of a fronting insurer.

Many French insurance coverage teams have chosen Luxembourg for his or her reinsurance captives, and post-Brexit, quite a few UK-based insurance coverage teams have relocated their domicile to Luxembourg.

Hogan Lovells mentioned that Luxembourg’s enchantment stems from its engaging regulatory regime, the versatile strategy of the Luxembourg insurance coverage regulator, and the extremely certified personnel obtainable to steer and handle captives.

On the onset of Brexit, the Luxembourg insurance coverage regulator, the Commissariat aux Assurances (CAA), positioned Luxembourg as a robust and open-for-business jurisdiction for establishing an EU-based domicile or transferring portfolios from UK-based firms.

Regardless of successive shocks, Luxembourg’s insurance coverage market has remained resilient. Based on the newest CAA annual report, there was a major 9.35% improve in employment within the reinsurance sector in 2022. Hogan Lovells means that this pattern ought to proceed to make sure Luxembourg stays well-equipped when it comes to human assets and governance.

Geopolitical circumstances have led to upward changes in reinsurance costs at renewal, growing curiosity in reinsurance captives. Industrial teams have discovered reinsurance captives helpful for lowering the prices of reinsuring dangers

Sure particular dangers, corresponding to cyber-risks, are tough to reinsure as a result of restricted urge for food from reinsurers and unattractive costs for insureds. Luxembourg has capitalized on this by highlighting its benefits on this sector, as seen in publications by Luxembourg for Finance.

Hogan Lovells additionally highlighted a pattern to exclude or refuse insurance coverage for sure dangers, corresponding to pure catastrophes or cyber dangers, or to extend premiums or cut back capability, making captive options extra engaging. Luxembourg reinsurance captives exist throughout nearly all sectors.

Luxembourg can also be anticipated to stay a superb location for establishing reinsurance captives. Given the variety of captives approved in Luxembourg, the CAA is well-versed in dealing with captive reinsurance purposes and making use of the Solvency II necessities, corresponding to provisions for claims excellent and the equalization reserve. The CAA’s software of the precept of proportionality in its rules for captive reinsurance undertakings can also be helpful.

Hogan Lovells famous that whereas sure jurisdictions have adopted reforms to make their reinsurance captive regimes extra aggressive, Luxembourg stays assured in its personal competitiveness. The newest CAA annual report highlights that reinsurance premium revenue for 2022 reached document ranges, with ongoing curiosity in reinsurance captives.

Nonetheless, the assessment of the Solvency II framework and potential new substance necessities might pose challenges to Luxembourg’s success. Hogan Lovells means that the CAA is prone to stay a versatile and pragmatic regulator, essential for Luxembourg’s continued success.

The CAA’s business-friendly strategy and its capacity to work together with market gamers and worldwide actors, such because the EIOPA, the European Fee, and the OECD, are vital components.

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