

UK (re)insurance captives: is the proposed regime enough?
The Government is consulting on the introduction of a UK (re)insurance captives regime. Here is what you need to know, together with our take on it.
Since the Labour party’s July 2024 general election victory, the UK Government has set economic growth as its central mission. It describes the financial services sector as the UK economy’s “crown jewel”. (Re)insurance is one of five priority growth opportunities in financial services.
The Government is also concerned that regulation following the 2007/2008 economic crisis has gone too far. Its view is that the system should not seek to eliminate risk taking, and so the Government intends to redress the balance.
To this end, amongst a raft of other financial services sector initiatives, the Chancellor of the Exchequer has launched a UK (re)insurance captives consultation.
To recap, a captive is a regulated insurance (or reinsurance) company which (re)insures other entities within the same group. There are many advantages of a captive, such as the ability to self-manage a portion of a group’s risk, particularly in a hard market and/ or when capacity is scarce. Captives are not a new idea; the concept has existed since the 1950s.
The Consultation
At 21 pages, 11 of them substantive, the consultation document is very short by financial services sector standards. The paper does not set out any specifics of UK regulation and asks open questions.
UK legislation already permits the establishment of captives, however the application process is identical to that for non-captive (re)insurers. As the Government recognises, the UK is not currently a destination of choice for captives.
The Government correctly identifies that proportionate UK captives regulation is critical. The new regime must include lower capital requirements, faster and more streamlined applications, and tailored ongoing governance and reporting. The consultation discusses the possibility of differing regimes for reinsurance-only captives and direct-writing captives. It is also welcome news that the Government proposes making the protected cell company framework applicable to UK captives.
The Government does not have pre-determined views on how the regime should work, with four exceptions:
- Financial services firms (eg (re)insurers, banks, and pensions funds) should be excluded from establishing (and passing risk to) their own UK captives.
- Life insurance and compulsory insurance should not be written through UK captives.
- There should not be a separate regulatory regime for captive managers.
- There should be no tax incentives for UK captives, with captives UK resident.
Analysis
The UK’s (re)insurance sector is, by any measure or statistic, world-leading. It clearly has the expertise and resource to service the expanding global (re)insurance captives sector. There are many UK value-adds too, including the UK (re)insurance sector’s talent for innovation.
As Callum Beaton, Deputy President of the Chartered Insurance Institute (CII) and a leading consultant on captive insurance issues, comments, much will hinge on the captives regime’s detailed regulation. More than 70 jurisdictions worldwide have some form of captive legislation. That number is growing and there is keen domicile competition (for example France’s recent captive offering). The London Market Group (representing Lloyd’s, LIIBA, the LMA and IUA, amongst others) has been at the forefront of the (re)insurance sector’s lobbying. The London Market Group points out that the captives regime must be internationally competitive in both design and use or it will simply not be chosen. This fact is acknowledged by the Government’s consultation.
If the UK successfully implements an internationally competitive captives regulatory framework with a comparable operational cost burden, then the Government’s position on tax will be a defining feature. Many UK entities have non-UK domiciled captives. A new regime could precipitate them to re-establish in the UK. Chris Riley, Partner at PKF Littlejohn, points out that if a UK entity retained a low-tax jurisdiction captive HMRC (the UK tax authority) might seek to challenge this decision under existing UK tax anti-avoidance legislation.
UK tax rates are likely to be higher than typical captive jurisdictions, and non-UK entities will be free to choose their domicile. If the Government maintains its current position on tax, there will be trade-offs and a key question will be whether an onshore UK captive’s access to UK (re)insurance expertise is outweighed by potential UK tax costs.
The proposed reforms are very welcome; the Government has listened and responded. Callum Beaton notes that the USA is the largest worldwide captive jurisdiction, demonstrating that although the UK is late to join, onshore jurisdictions can successfully compete with offshore.
Importantly, the Government has committed to maintaining the UK’s regulatory reputation. The Government and UK regulators (with their secondary objective of international competitiveness and growth) will need to balance this with the challenge of making the UK a worldwide captive destination of choice.
The consultation closes on 7 February 2025.
