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Setting up a captive insurance company

A captive insurance or reinsurance company is an insurance company owned by a commercial company or group, whose sole purpose is to insure the risks of that company or group.

The advantages are:
- Free cash flow is set aside to cover future risks.
- Special tax rules apply to the tax treatment of the equalisation reserve.
- Reduce overall cost of insurance for the group.
- Increase capital reserves of the group if claims are lower than reserves.
- Cover commitments of an institution providing retirement benefit.

The company may take the form of a public company limited by shares, a partnership limited by shares, a cooperative company, a european company or a mutual insurance association.

In Luxembourg, the minimum guarantee fund is set at €1.225.000 for a captive reinsurance company and between €2.300.000 and €3.500.000 for captive insurance companies, depending on risks covered.

All luxembourg captive insurance and reinsurance companies must obtain prior approval by the supervising authority CAA [1].

LIB will assist companies in setting up their own captive insurance structure in Luxembourg.


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