UK Captive Regime – Can the UK Compete?

As part of a major package of reforms announced by the Chancellor in the Leeds Reforms and the Mansion House speech, the Government published its response to the consultation and way forward on a UK captive insurance regime.

It does not come as a surprise that the Government is taking forward the proposed new captive insurance framework, with the detailed rules of the regime to be set by the regulators.

Although the Government has indicated that it wants to proceed at pace, the PRA intends to consult on new rules in summer 2026 with a view to implementing them in mid-2027, and the FCA will develop its proposals in parallel.

The new framework will include proportionately lower capital requirements, reduced application and administration fees, a faster authorisation process, and reduced ongoing reporting requirements for captives. The regime will differentiate between direct-writing captives, and reinsurance captives (i.e. a captive insurer reinsuring the risk of a group member). 

Some of the changes to the proposed regime since the initial consultation are as follows:

• The Government has rethought its proposal that regulated firms that deal with financial services and pensions should be excluded from establishing their own captives. This follows consultation responses that, for example, many other international jurisdictions do not have such a prohibition. Therefore, it is now accepted that there is a case for financial services firms to establish captives for some specific purposes (such as managing first party-only risks, e.g. in relation to a building owned by the firm) subject to limitations, to be considered by the FCA and the PRA.
• Certain life insurance products (such group life fixed-term policies) will be able to be written by UK captives.
• UK captives will be able to operate through the cells of UK protected cell companies (PCCs).
• Captives will be excluded from writing compulsory lines (such as employers’ liability) on a direct basis but this may be permitted on a reinsurance basis. 

• The Government has concluded that it is not necessary to create a new regulatory activity in relation to captive managers, but the FCA is considering the application of the existing insurance intermediary regime.

There is no change to the Government’s view on tax. It states that tax incentives are not a necessary component of introducing a modern, competitive captive insurance framework. Therefore, it remains to be seen whether potential UK tax costs are a disincentive to onshore captive candidates, or whether tax will be outweighed by other factors, such as London’s unsurpassed (re)insurance expertise.

As the consultation responses note, the UK has some way to go if it is to catch up with established captives jurisdictions such as Bermuda, the Channel Isles and Vermont. Perhaps the UK will be able to leverage a late-mover advantage.

There is undoubtedly strong insurance industry appetite for a UK captive regime, and the Government has put the (re)insurance sector at the heart of its Financial Services Growth and Competitiveness Strategy. It remains to be seen whether the UK captives regime has gone far enough to be internationally competitive.