The UK government’s announcement of a dedicated framework for captive insurance, made by the Chancellor, mark a significant shift in the country’s approach to this niche but vital segment of the insurance market. This move, along with broader measures aimed at boosting the finance sector, underscores the urgent need to ease regulatory burdens and stimulate economic growth.
While specific details were initially scarce, one of the most anticipated initiatives is a plan to accelerate the authorisation process for new captives. This measure has the potential to significantly reduce approval times from six weeks to just ten days, allowing fast-track captives to establish themselves in the UK quickly. This could be a crucial factor in making the UK a more competitive and attractive destination for setting up captive entities.
Captive insurance, a form of self-insurance where companies establish their own insurance entities to manage specific risks, has long been underutilised in the UK compared to other jurisdictions like Bermuda, Guernsey, and Vermont. The new regulatory changes aim to address this imbalance, making the UK a more attractive home for captive insurers.
Globally, captives account for 20-25% of all insurance premiums, representing a growing market driven by large insurers seeking greater control over their risk management and cost of risk. This is particularly relevant when faced with rising premiums and limited coverage in the traditional market. Beyond the obvious benefits, a strong captive sector helps a jurisdiction build a deep pool of insurance talent that can be leveraged by the wider market.
Experts note that for the UK to compete effectively, it must develop a proposition that outshines other strong captive markets, who offer offer specific advantages that the UK has traditionally lacked, making them more financially appealing. For instance, Luxembourg provides equalisation reserve provisions for smoothing underwriting profits; Malta is the only EU member state offering Protected Cell Companies (PCCs); Guernsey's independence from Solvency II allows for greater flexibility and faster setups; and France offers flexible equalisation reserve treatment.
For businesses with operations in both the UK and the EU, while a reformed UK captive regime would be more attractive, the issue of "passporting" rights post-Brexit for EU-based risks would remain a challenge.
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Key features of the reforms
The reforms are part of the UK government’s broader strategy to enhance the competitiveness of its financial services sector. Key elements include:
Lower capital requirements: Captive insurers will benefit from proportionately lower capital requirements, reflecting their unique risk profiles.
Streamlined authorisation: Faster authorisation processes will reduce the time and administrative burden for setting up captives.
Reduced reporting obligations: Captives will face lighter reporting requirements compared to traditional insurers.
Protected cell companies (PCCs): The reforms integrate captives into the UK’s PCC framework, making it easier for smaller businesses to establish captives.
These changes align the UK’s regulatory framework with international standards, particularly those in Bermuda and Singapore, which have long been leaders in the captive insurance space.
Economic and market implications
The reforms are expected to generate significant economic benefits. By attracting more captive insurers, the UK could see increased job creation and enhanced activity in its insurance market. A survey by the Association of Insurance and Risk Managers in Industry and Commerce (Airmic), a risk management association, revealed that due to growing demand “67% of respondents said their organisation already uses a captive. Of those whose organisation did not, 75% said their organisation was exploring the possibility of forming a captive now or in the future” (AIRMIC: AIRMIC calls for a class based or graded regulatory regime for captives in the UK).
The UK’s insurance market, already the largest in Europe, stands to potentially make large gains from these reforms. By offering a competitive alternative to offshore jurisdictions, the UK could retain more insurance business domestically, boosting revenue across the sector.
Challenges and limitations
While the reforms have been broadly welcomed, they are not without challenges. Critics argue that the changes are relatively cautious, focusing more on catching up with other jurisdictions than on breaking new ground. Notably, the exclusion of certain types of firms, such as financial institutions, from establishing captives has been seen as overly restrictive.
Moreover, the reforms do not include tax incentives, which are often a key factor in the attractiveness of offshore captive domiciles. This could limit the UK’s ability to compete with jurisdictions like Bermuda, which offer favourable tax regimes.
What to expect next?
The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) are expected to finalise rules for the new framework by mid-2027. These consultations will provide an opportunity for industry stakeholders to shape the final regulations, ensuring they are both effective and competitive.
The integration of captives into the PCC framework is particularly promising. PCCs allow businesses to pool resources and reduce administrative costs, making captive insurance more accessible to smaller companies. This could potentially democratise the use of captives, enabling a broader range of businesses to benefit from this risk management tool.
The UK’s captive insurance reforms represent a significant step forward in making the country a competitive player in the global captive insurance market. By addressing long-standing barriers to entry and aligning with international best practices, the reforms have the potential to transform the UK into a hub for captive insurance. However, the success of these reforms will depend on their implementation and the willingness of businesses to embrace the new framework.
For more insight on the captives insurance market or for a discussion about your hiring strategy, get in touch with one of our insurance consultants.
Sources
AIRMIC: AIRMIC calls for a class based or graded regulatory regime for captives in the UK
Captive.com: A milestone year for captive insurance growth
Captive insurance times: Global captive numbers soar to 8,000 in 2024
Marsh: 2025 Captive benchmarking report
Pinsent Masons: Captive insurance regulatory regime to be introduced in the UK
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