LUXEMBOURG-All's quiet on Luxembourg's captive front, though captive managers are optimistic that activity will pick up this year.

There was a net gain of six captive reinsurance companies on the books at year-end 1996, bringing the total to 236, according to Marc Warken, director at the Commissariat aux Assurances. Nine captives were set up in Luxembourg last year, while three were discontinued at the request of their owners, he said.

This year Luxembourg already has added another four captives to its books, bringing the total to 240, said Mr. Warken. "It's steadily growing," he said. Two of the new captives this year are owned by insurers, and the other two are owned by banks that sell insurance and reinsure it into their captives.

Luxembourg captives are only allowed to write reinsurance. About 15% to 20% of all of the country's reinsurance captives are owned by insurance companies.

One of the growth areas at the moment in Luxembourg is in the life insurance and reinsurance arena as banks begin to offer this coverage to their customers throughout Europe.

"It's been a moderate year," said Tim Yeates, managing director of UNISON Management (Luxembourg) S.A. UNISON manages 25 captives at the moment, up from 21 at year-end 1995, representing parent companies from 10 different countries. That's an addition of three in 1996 and one so far in 1997.

"We've not seen an explosion of captives from Southern Europe or Eastern Europe, which was expected a few years ago," he noted.

It could be that the Luxembourg captive market has "matured" and it's now time for another stage of alternative market development, just as Bermuda has evolved over the years, Mr. Yeates said. It may mean new products developing in Luxembourg or owners from different countries setting up captives in Luxembourg, he said.

"Not much has happened since last year," said Tony Nordblad, managing director of SINSER (Luxembourg) S.A.R.L. "Growth has been slower than in the past."

There has not been the influx of French-parent captives as in the past few years, he said. "For us, it's a more mature market."

SINSER manages 34 captives, writing mainly property risks and some liability coverages.

Growth for the domicile may come from companies in countries such as Spain, Italy or Germany, he said.

"Things are steadying up," said Frederick Gabriel, general manager for GECALUX S.A., the largest captive manager in Luxembourg. "The growth that we saw here five or 10 years ago is not happening. Things are developing, but as Fred Reiss would say, 'All the elephants have been shot.'*"

Mr. Reiss, founder of what is now International Risk Management Group Ltd., now a part of Swiss Reinsurance Co., was one of the pioneers in developing captive insurance companies.

Mr. Gabriel foresees Luxembourg adding about 20 captives per year on a regular basis, with GECALUX taking in five or six new ones annually.

GECALUX managed 67 reinsurance captives at year-end 1996 with an estimated premium volume of $500 million. The company added five new captives last year whose owners came from Germany, France and Spain. About five of the 67 are owned by insurance companies. Four of the managed captives come from Japan.

GECALUX also does the accounting for the only group captive in Luxembourg, Indurisk Ruckversicherung A.G. of Luxembourg. Indurisk, owned by German companies Hoechst A.G., Bayer A.G. and BASF A.G., writes environmental liability coverage (BI, Oct. 2, 1995).

While the captive market in some countries is mature, in others captives are still new, which means those countries will continue to be interested in Luxembourg, Mr. Gabriel said. These include Germany, Portugal, Spain and Italy.

"It was quiet all through the year and then new interest picked up at the end of the year," said Claude Weber, vp and general manager of Marsh & McLennan Management Services (Luxembourg) S.A. He is confident that as a result of the new interest, new reinsurance captives will be on the books this year.

M&M has a total of 26 captives under management with a total premium volume of about $200 million.

Companies that are attracted to Luxembourg come mainly from continental Europe. Few, if any, come from the United Kingdom and none of the captives is from the United States.

Luxembourg is attractive because it has long-term stability, both politically and economically, and is part of the European Union, captive managers say. Indeed, Luxembourg takes over the six-month presidency of the European Union in July.

Luxembourg also has 25 differ-ent tax treaties with other nations, a good infrastructure and a mature banking industry.

More German, Belgian and Luxembourg companies are interested in setting up reinsurance captives in Luxembourg, noted Mr. Warken of the Commissariat aux Assurances. Parents of the new captives come from all areas of business, from the food industry to banks. Many of the new reinsurance captives write liability business.

Luxembourg's latest total premium volume is 78 billion Luxembourg francs ($2.50 billion) at year-end 1995. The year-end 1996 premium volume won't be available until October.

Changes in captive management are expected in the wake of recent consolidation among the broker parents of some managers.

UNISON, for example, is owned by the members of the UNISON network of insurance brokerages including Johnson & Higgins. With J&H acquired by M&M, it is unclear whether UNISON will remain independent in Luxembourg or if M&M will merge with UNISON in the Grand Duchy.

"Things are under study until the end of April," said Mr. Yeates of UNISON, which has 18 employees and has been in Luxembourg for 11 years.

"It's too early at this stage to comment on this one," said M&M's Mr. Weber. M&M, established for 10 years in Luxembourg, has seven employees.

Meanwhile, GECALUX and International Risk Management Group plan to cooperate with each other worldwide now that Swiss Reinsurance Co. has taken a substantial undisclosed minority shareholding in GECALUX. Swiss Re already has a 70% stake in IRMG. GECALUX's managing director and founder, Roland Frere, will continue to have a controlling interest in his company.

"The fit is very good," said Mr. Gabriel of GECALUX. While IRM is not a major player in continental Europe, GECALUX is well known there as it is a Luxembourg-based company. Indeed, GECALUX has been managing IRMG's office in Luxembourg. "They're in English-speaking countries; we are not," said Mr. Gabriel.