Government plans to ‘proceed at pace’ to introduce new UK framework for captive insurance companies (15 July 2025)

A captive insurer is an insurance company set up by a business, typically a sizeable corporate group, to self-insure against risks the business is exposed to.

In November 2024, HM Treasury (HMT) launched a consultation on a proposed new regulatory framework for captive insurance companies.  The consultation noted, among other points, that “the UK is not currently perceived to be an attractive destination for the establishment of captive insurance companies” and sought feedback, broadly, on ways to foster the growth of the UK’s captive insurance market.  The consultation set out various questions covering issues including capital and reporting requirements and authorisation processes, for example. The consultation closed on 7 February 2025.

On 15 July 2025, HMT published its consultation response^[1] confirming that, “the government, working closely with the financial regulators, intends to proceed with the introduction of a new UK captive insurance framework.”  The response comes alongside the Chancellor’s Mansion House 2025 speech setting out the Leeds Reforms and launching a Financial Services Growth and Competitiveness Strategy.

Points from HMT’s consultation response include:

• “The government also acknowledges and agrees with the feedback from the majority of insurance sector respondents, who called for a broader scope than originally proposed—specifically, to allow a wider range of firms to establish captives and to permit a broader set of risks to be insured through them.”
• While detailed rules will be for the PRA and the FCA to consult on and establish, “the government anticipates that these will include proportionately lower capital and reporting requirements and facilitating faster authorisations for captive insurers. The government’s view is that these changes do not require new legislation.”
• “The government does not intend to create a bespoke regulatory framework for captive managers, as it considers that the existing regulatory framework for insurance intermediaries is sufficient…”
• “The government also sees the case for broadening the range of companies who may be able to benefit from captive insurance arrangements. This could include smaller companies who may not wish, or have the means, to establish a standalone captive insurer, but who may prefer to establish a captive through a Protected Cell Company (PCC).”
• The government is of the view, as originally outlined in its consultation, that the new framework “should initially differentiate between two types of captive, direct-writing and reinsurance”. It will be for the PRA and the FCA to establish the rules on this, which “will include considering the appropriate capital, reporting and other regulatory requirements for these different models of captive.” Further details are in Chapter 3 of the consultation response.
• The government agrees that “there is a case for allowing financial services to establish their own captives for specific, limited purposes (e.g. to manage first party only risks, such as a building owned by a firm).” And that that captives should be excluded from writing compulsory lines on a direct basis

HMT’s response notes that the government has, also on 15 July 2025, published a consultation on proposed reforms that cover the issuance of insurance linked securities (ILS) and the use of PCCs: “The consultation seeks views on how the government can improve the wider regulatory framework for risk transformation, including the future role of PCCs and how they can be established to facilitate captive insurance business instead of risk transformation. The government expects that legislative changes will be necessary for this.”

The PRA has published a joint statement with the FCA^[2] welcoming HMT’s plans in relation to both captives and the consultation on ILS / PCCs. The PRA and the FCA plan to launch consultations for a new regulatory framework for captives in summer 2026 with, according to HMT’s response, a target implementation date of mid-2027.

Generally the proposals have been welcomed by the (re)insurance market who consider they would help the sector to grow and deliver wider economic benefits. The consultation response noted that the majority of insurance sector respondents to the consultation wanted to go further than the scope proposed – to allow more types of firms to be permitted to set up a captive, and to allow more types of risk to be insured by them. There was strong consensus among industry respondents on the necessity of simplifying regulatory processes, reducing capital requirements, and tailoring regulations to the unique risk profiles of captive insurers.

The aim and benefits of the proposals

The government intends to make the UK a more attractive destination for setting up a captive insurance company. Sometimes, captives are established in jurisdictions (such as Brazil, India, China etc) which require insurers to be domiciled and licensed in the country in which the policy is issued. The proposals are unlikely to impact the writing of that business. Instead, the main driver for reform seems to be the desire to encourage UK companies to establish captives in London, rather than opting for commonly used jurisdictions such as Bermuda and the Cayman Islands. There are other advantages in opting for London (beyond regulatory considerations): for example, taking advantage of the proximity to the long-established London insurance market, which is the largest in Europe.

It is worth noting that the reinsurance of captive insurers can present unique issues, for example in relation to notification, disclosure and claims control. Some of these issues were discussed at our recent “Captive in the Middle” seminar and our experienced team in London and New York can supply further details, or present to insurers and reinsurers who are interested in this space, on request.

^[1] Captive_insurance_Consultation_Response.pdf and Captive insurance - GOV.UK (which also includes a link to the original consultation)

^[2] Joint statement by the PRA and FCA on HM Treasury’s captive insurance consultation response | Bank of England

HMT consultation on risk transformation regime