Joint Stock Companies

Yes, but must comply with European Union (EU) directives relating to direct insurance companies.

Able to write business in all 27 EU countries under the freedom of services directive, plus the three EEA countries.

Related parent risk and unrelated risk

Minimum capital is Euro 1,225 million or its equivalent in other
currency for a reinsurance captive; otherwise, 3,2 million minimum for a reinsurance company.

Min. capital is Euro 2.3 million or Euro 3.5 million for a direct writing captive depending on the classes of business written.

Solvency

As a general rule of thumb, the higher of 18% or 16% of gross premiums or 23% or 26% of gross, depending on the volume must be matched by free reserves (paid-up share capital and retained profits, etc.). An uplift of 50% is applied to premiums and claims for liability classes. This solvency requirement may be reduced depending on the level of risk ceded to reinsurers (subject to a maximum reduction of 50%).

Premium Taxes

On Direct Insurance, 4% Except Fire (additional 6% imposed for Fire Brigade Tax)

On Reinsurance, 0%

Intercompany Loans

Inter-company loans are allowed. For solvency purposes the regulator will require an acceptable investment spread, will look at each case on its merits, and will take into account the mix of the captive programme and will expect the loan to be reimbursed at short notice.

Investment Restrictions

No specific restrictions, but the assets representing technical reserves must take into account the type of business carried out by the reinsurance company in order to ensure the appropriate level of security, yield and liquidity of the company's investments.

Taxation

Reinsurance companies are required to create a catastrophe loss reserve that goes beyond the normal provisions made for outstanding claims and existing risks. This reserve, due to its own deductibility, acts as a tax deferral mechanism until such time as the maximum allowable amount is exceeded and income has to be recognized and taxed at the latest at the date of liquidation. 
 
An actuarial risk calculation for each line of business written will be required to establish the standard deviation which will be multiplied by a factor of 6 to arrive at the maximum allowable amount. In any event, an overall maximum reserving ceiling of 17.5 times the net average premiums earned over the last 5 years will be imposed.

In addition, once the equalization reserve has reached 30% of its maximum, that part of the financial income that exceeds 60% of the normal yield on government stocks (the yield to be taken into account will be published by the Insurance Regulator) will be subject to Luxembourg income tax.

Luxembourg reinsurance companies are considered as normal fully taxable corporations according to Luxembourg tax law.

Taxable income derives from the accounting profit established under generally accepted accounting principles adjusted for tax purposes.  Such adjustments are those applied in any developed tax regime.

Accordingly, Luxembourg reinsurance companies are subject to the following taxes:

Non-recurrent

The capital duty has been abolished as of Jan. 1, 2009.

Recurrent annual taxes

On capital:

• Net worth tax - 0.5%  

On profits:

• Corporate Income Tax - 21.84%
• Municipal business tax - 6.75% These taxes are applied on profit after the application of the equalization reserve allocations.

• Combined 28.59%

  Luxembourg has double taxation treaties with the United States, most European countries and numerous other countries.

• Taxable basis for each tax needs to be adjusted according to the relevant tax law

• Direct writing captives are also subject to the combined tax rate on profits. No equalization reserve applicable except for credit risks.
  

Reporting Requirements

• 1991 Insurance Law and Grand Ducal Regulations, amended 1994, 2001 and 2007
  Annual Reporting-Laws of Dec. 8, 1994 based on the EU Directive on accounts for insurance and reinsurance companies
  Audited Financials
  Annual reporting of the reinsurance company to the Regulator (CAA)
  Separate report for the auditor to the Regulator (CAA)
  Regulator (CAA) relies on audit report, but actuarial computations required for Life Business
  Quarterly returns for direct writers