Article 6 of the French Finance Act for 2023 is intended to provide a more favorable regulatory framework for reinsurance captives. It stems from the legislator's desire to repatriate the reinsurance captives of French companies to France and, more broadly, to encourage companies to set them up in France in the future.
The publication of the implementing decree on 9 June 2023, followed by the administrative guidelines a few days later, helps to clarify the details of this new regime.
The legislator initially noted that French companies had been faced with a deterioration in their insurance cover for several years, linked in particular to:
- the emergence of new risks (pandemics, cyber-attacks, etc.) and the multiplication and intensification of losses (natural disasters, operating losses, etc.);
- the economic context, which can make it difficult for insurers to offer satisfactory cover conditions for French companies (higher premiums, reduced scope of cover or denial of cover for certain risks).
Even before this reform, French companies were able to cover part of their risks through a captive reinsurance company. However, the lack of a suitable tax framework for this mechanism in France meant that French companies largely domiciled their captives abroad, giving a preference to countries with tax regimes considered favorable for captives, such as Guernsey, Luxembourg and Ireland.
As of the date of entry into force of the French Finance Act for 2023, only 9 of the 120 captives owned by French companies were domiciled in France.
The aim of the law's general rapporteur, Jean-René Cazeneuve, was therefore to "repatriate the captives of our national companies located abroad. Locating the risk cover for our companies in France is a welcome element of sovereignty".
Scope and overview of the new regime
Article 6 of the Finance Act for 2023 added a new section II to Article 39 quinquies G of the French Tax Code, which now allows captive reinsurance companies (with effect from financial years beginning on or after 1 January 2023) to set up, free of tax, a "resilience provision" (or "provision pour resilience" as defined under French law) covering expenses relating to accepted reinsurance transactions made in respect of certain specific risks.
In other words, this regime enables profits generated during a particular financial year to be capitalized with a view to settle any claims that may arise in subsequent years.
Insofar as captives are dedicated to reinsuring the risks of a group, they cannot diversify their risks among their policyholders. The new provision should therefore enable them to diversify their risks over time.
This new provision may be set up by a French captive reinsurance company, provided that the following three cumulative conditions are met:
- it has obtained an administrative authorization issued by the French prudential control and resolution authority (ACPR) under the conditions set forth by Article L. 321-1-1 of the French Insurance Code;
- be owned by a company other than a "financial company" (e.g., other than a credit institution, an insurance or reinsurance company, a mutual insurance company, a provident institution, a union, an investment company, or a mixed financial holding company);
- its purpose is to provide reinsurance cover exclusively for business risks, excluding any financial companies.
The provision may only be registered tax-free to cover expenses relating to certain risks listed exhaustively in Article A. 344-2 of the French Insurance Code, namely damage to professional and agricultural property, natural disasters, general civil liability, pecuniary losses, damage and pecuniary losses resulting from damage to information, communication and transport systems.
In addition, the deductible amount of such provision is subject to the following double limit: (i) the deductibility of the annual allocation cannot exceed 90% of the amount of the profit resulting from the sum of the technical profits associated with each category of relevant risk and (ii) the overall amount is capped at 10 times the average amount of the minimum capital requirement (MCR), assessed over the last three years. It should also be noted that annual allocations that have not been used within fifteen years will be reintegrated into taxable profits in the sixteenth year.
Lastly, the registration of a "resilience provision" entails a number of specific accounting and reporting obligations for the relevant companies. In this context, the captive reinsurance company will have to establish both an underwriting profit and loss account ("compte de résultat technique") and a statement showing, in particular, the amount of allocations registered during each financial year. This provision must appear on the statement of provisions provided for in Article 38, II and III of appendix III to the CGI, it being recalled that the absence of such a statement might result in a fine equal to 5% (or 1%) of the sums which have not been declared. All of these documents must be attached to the income tax return for each financial year.
Although the recent publication of the implementing decree and the administrative guidelines have made it possible to better appreciate the ambitions of this reform, we will have to wait for the Government's report to Parliament, no later than 30 September 2025, particularly with regard to the characteristics of beneficiaries, as well as the cost and effectiveness of the reform, in order to assess its real consequences.
Article 39 quinquies G II of the French General Tax Code
II. - Captive reinsurance undertakings referred to in 3° of article L. 350-2 of the French Insurance Code, owned by an undertaking other than a financial undertaking within the meaning of 12° of article L. 310-3 of the same code and whose purpose is to provide reinsurance cover exclusively for the risks of undertakings other than financial undertakings referred to in the same article L. 310-3 may set up, free of tax, a provision intended to meet the expenses relating to accepted reinsurance transactions whose insurance risks fall within the categories of damage to professional and agricultural property, natural catastrophes, general civil liability, pecuniary losses as well as damage and pecuniary losses resulting from attacks on information and communication systems and transport mentioned in article A. 344-2 of the said code, in the version in force on 31 December 2022.
The limit within which the annual allocations to this provision may be deducted from profits and the overall amount of the provision are set by decree, based respectively on the size of technical profits and the average over the last three years of the minimum capital requirement within the meaning of article L. 352-5 of the same code.
This provision is allocated, in the order of age of the annual allocations, to the overall offsetting of the negative balance of the technical profit and loss account for the financial year for all the corresponding risks. Annual allocations that have not been used for this purpose within fifteen years are deducted from taxable profits in the sixteenth year following the year in which they were recorded.
Risks for which a provision has been established under the conditions set out in the first paragraph of this II may not give rise to the recognition of a provision pursuant to I of this article.
The conditions for recording and declaring these provisions are laid down by decree.
 French Finance Act for 2023 n° 2022-1726 of 30 December 2022.
 Decree n° 2023-449 of 7 June 2023 on the accounting rules for the resilience provision set up by captive reinsurance companies.
 BOI-BIC-PROV-60-70-15 dated 14 June 2023.
 Amendments n° I-1292 rect. et n° I-3519.
 Report on behalf of the Finance Committee, the General Economy and Budgetary Control, at second reading, on the draft Finance Act for 2023 (No. 598), Mr. Jean-René Cazeneuve, page 43.
 Reproduced in extenso below.
 Within the meaning of Article L. 350-2 3° of the French Insurance Code.
 Within the meaning of Article L. 351-3 of the French Insurance Code.
 In the version in force on 31 December 2022.
 Underwriting profit is (in short) the difference between: (i) premiums and contributions and (ii) the cost of claims.
 In accordance with Article R. 352-29, I-b of the French Insurance Code, the MCR corresponds to an amount of eligible core capital below which policyholders, contract holders, beneficiaries and reinsured companies would be exposed to an unacceptable level of risk if the reinsurance company were authorized to continue its business.
 This provision will have to appear on the liabilities side of the captive's balance sheet as a "regulated provision".
 Article 16 C of Annex II of the French Tax Code.