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Insights from world legislation 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 stated. These firms, subsidiaries inside a bunch, typically 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 stated that Luxembourg’s attraction stems from its engaging regulatory regime, the versatile method of the Luxembourg insurance coverage regulator, and the extremely certified personnel accessible to guide 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 most recent CAA annual report, there was a big 9.35% enhance in employment within the reinsurance sector in 2022. Hogan Lovells means that this development 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, rising curiosity in reinsurance captives. Industrial teams have discovered reinsurance captives useful for decreasing the prices of reinsuring dangers

Sure particular dangers, equivalent to cyber-risks, are tough to reinsure attributable to 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 development to exclude or refuse insurance coverage for sure dangers, equivalent to pure catastrophes or cyber dangers, or to extend premiums or scale back capability, making captive options extra engaging. Luxembourg reinsurance captives exist throughout nearly all sectors.

Luxembourg can be anticipated to stay a great location for establishing reinsurance captives. Given the variety of captives licensed in Luxembourg, the CAA is well-versed in dealing with captive reinsurance functions and making use of the Solvency II necessities, equivalent to provisions for claims excellent and the equalization reserve. The CAA’s utility of the precept of proportionality in its rules for captive reinsurance undertakings can be useful.

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 most recent CAA annual report highlights that reinsurance premium earnings for 2022 reached file ranges, with ongoing curiosity in reinsurance captives.

Nonetheless, the assessment of the Solvency II framework and potential new substance necessities may 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 method and its means to work together with market gamers and worldwide actors, such because the EIOPA, the European Fee, and the OECD, are essential components.

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