New Domiciles Redefining European Captive Insurance Market

AM Best's latest analysis, outlined in its report, New Domiciles Are Changing the Landscape for the European Captive Insurance Segment, details transformative trends in Europe's captive insurance market.

According to AM Best, France has become a significant player in the European captive market since introducing specific regulations in 2023. The country licensed 15 captives by the end of that year and expects additional formations through 2024 and 2025. Notable formations include captives by Naval Group, LFP Ré, and Rubis Energie. Italy is also seeing activity, with two redomiciliations in 2023—Prysmian Riassicurazioni and Enel Reinsurance—both driven by parent companies seeking favorable frameworks. A third Italian captive, Eni Insurance, is relocating from Ireland to Italy in 2024, signaling a trend toward domestic consolidation.

Despite the rise of these new players, Guernsey continues to lead as Europe's top captive domicile, with 199 licensed captives at the close of 2023. Luxembourg ranks second with 195 captives, maintaining its position through 5 new formations and 5 closures in 2023. The Isle of Man holds third place with 85 captives, reflecting modest growth compared to the previous year. Smaller domiciles like Ireland and Sweden experienced relative stability, while Switzerland, Malta, and Gibraltar reported flat numbers.

AM Best underscores that the hardening insurance market has bolstered demand for captives as businesses seek cost-effective alternatives for managing risks such as cyber threats, property losses, and business interruptions. While reinsurance markets have presented challenges, captives with solid underwriting track records have managed to maintain favorable outcomes. Capacity has been available to captives with disciplined underwriting, even as reinsurance costs rise.

Regulatory changes are also reshaping the market. The United Kingdom has launched consultations on captive insurance regulation, set to conclude in 2025, potentially making the jurisdiction more competitive. Gibraltar is progressing toward a "dual captive" framework designed to allow entities to write business across both UK and EU markets. This initiative could attract international companies seeking flexible domiciles post-Brexit.

The report highlights the impact of Solvency II amendments on EU-domiciled captives. These updates, expected to be implemented by 2026, introduce proportionality measures aimed at reducing compliance burdens for small and noncomplex captives. Key milestones include the European Parliament's adoption of text amendments in April 2024. Under these changes, captives classified as small and noncomplex could benefit from streamlined reporting, governance, and risk assessment requirements, pending national supervisory approvals.

AM Best notes that external pressures, including inflation and geopolitical tensions, continue to influence captive insurance strategies. Elevated reinsurance rates, coupled with rising casualty and property premiums, have underscored the value of captives in mitigating market volatility. The report also details challenges posed by the EU Digital Operational Resilience Act (DORA), effective January 2025, which introduces additional cybersecurity compliance requirements for European captives.

While the industry faces growing regulatory complexities, AM Best emphasizes that most European captives remain well-capitalized, with strong performance underpinned by favorable solvency metrics. The report's data reveals stable ratings across the majority of European captives, with few exceptions. For example, Sigurd Rück AG's financial strength rating was upgraded in 2024, reflecting improved stability in its parent company's operations.

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