Luxembourg remains an important European domicile, but one in which development has slowed to a trickle.

Two new captives were added to the register in 1998 and two captives were removed, so the total number of 255 was the same at the start and the end of the year.

Although Luxembourg as a member of the European Union could offer captives the ability to write direct business throughout the EU, it has instead become a centre of reinsurance captives. Luxembourg captives must establish equalisation reserves, a policy which has aroused the suspicions particularly of tax authorities, even though there is substantial Luxembourg tax to be paid once profits are declared.

This is one reason for the lack of growth, particularly from France which was Luxembourg's main source of business. The numbers have remained stable, partly because the local tax is a disincentive to moving a Luxembourg captive. However, in the face of competition from two other domiciles with EU status, Dublin and Gibraltar, Luxembourg is unlikely to expand as a captive centre unless it passes new legislation, which is not apparently contemplated at the moment. Although the growth in Luxembourg's financial services sector has more than compensated for the decline in its traditional heavy industry, steel, the emphasis is more on banking than insurance.

In addition to its EU membership, Luxembourg participates in an economic union with Belgium on trade and most financial matters and is also closely connected economically to the Netherlands.

Some statistics
The regulatory authority, the Commissariat aux Assurances, says gross premiums written by Luxembourg captives in 1997 amounted to LUF 99.526 billion ($2.6 billion). Net premiums were LUF 79.213 billion and net claims amounted to LUF 52.204 billion. Total assets of Luxembourg's international reinsurance companies at the end of 1997 over LUF 400 billion, up from LUF 350 billion ($9.5 billion) at the end of 1996, although it is important to note that the figures include companies which would not be considered classic captives, such as bank rent-a-captives.