A recent survey conducted by the risk management association Airmic has demonstrated a clear demand for a UK captive insurance regime and, in turn, a desire for this to be reflected within UK financial services regulation.
Background
Captive insurers are insurers established by corporate groups to insure primarily or exclusively certain risks of the group. Captive insurance is essentially a form of self-insurance which helps businesses pool and manage risk. Despite the pre-eminence of the UK (re)insurance sector and the fact that captives are not a new concept, the UK currently lacks a targeted captive insurance regime.
Although the establishment of captive insurers is permitted, the UK is not viewed as an attractive location for captives since they would be subject to many of the same regulatory requirements as other insurers and reinsurers (for example, those on authorisation, governance and capital, and reporting). This is out of step with other jurisdictions. For instance, France recently established a targeted captives offering. It is no surprise, therefore, that most UK-associated captives are domiciled offshore.
Government consultation
In November 2024, the UK government announced a consultation on a new approach to regulating UK captive insurers. The consultation was launched following representations that a new regulatory regime could support the growth of the UK insurance market and, by extension, the broader UK economy, by making the UK insurance market a more attractive hub for businesses seeking efficient risk solutions. Although the government recognises these benefits, it has committed to maintaining the UK's regulatory integrity.
The reforms proposed in the consultation include:
- Proportional regulatory requirements to reflect the risk profile of captive insurers (although the consultation lacks detail on what these requirements would be)
- Differentiation between direct-writing captives and reinsurance captives
- Exclusion of certain types of firms from setting up captives and certain activities (for example, insurers, banking groups, pension funds and superfunds, as well as life insurance and compulsory lines of insurance)
- Regulatory discretion to determine whether other liability lines of business could be covered by direct writing captives, reinsurance captives only, or neither
- Either the FCA is to continue to regulate captive managers under the current framework or a new regulated activity of captive manager will be created (the government's initial view is in favour of the former option)
- Captives will be permitted to operate via cells of protected cell companies (PCCs), an approach adopted in a number of other jurisdictions
Although these proposals have been broadly welcomed, they represent a relatively cautious approach to deregulation, doing no more than catching up with other jurisdictions with captive regimes. The government's primary motivation appears to be to offer UK corporates (including public bodies) a domestic alternative to existing overseas captive options, rather than to attract overseas corporates to the UK market in preference to existing captive markets.
Some of the proposed restrictions, such as an absolute prohibition on financial institutions making use of UK captives to avoid "regulatory arbitrage" and minimise "the potential for financial stability risks", seem unduly restrictive, given that the UK does not currently prohibit the same institutions from making use of captives based in other jurisdictions.
The proposed use of PCCs is likely to be welcome, particularly for smaller businesses, since PCCs help contain administration costs and enable resources to be pooled. The UK's existing PCC structure introduced for the Insurance-Linked Securities regime is likely to be the starting point for the use of PCCs to house captives.
The consultation closed on 7 February 2025 and the government released its response to the consultation on 15 July 2025. The response to the November 2024 consultation is largely positive and the government has adapted, where appropriate, their position. As expected, the government intends to proceed with the introduction of a new UK captive insurance framework. The details of any UK captive regime will reside in PRA and (to a lesser extent) FCA rules, so the support of the UK's regulators will be crucial to the success of a UK captive market. The PRA and the FCA are expected to launch further consultations in summer 2026, with a view to implementing the new framework in mid-2027.
Airmic survey
Following the government's consultation, in March 2025 Airmic published a survey of its members which demonstrated the growing UK demand for captives. Among the key findings from the survey were:
- More than a quarter of respondents write between £2 million and £5 million in annual premium through their captive(s)
- 67% of respondents have increased utilisation of captive(s) as a direct result of commercial market conditions
- 40% of respondents who have captives have these domiciled in Guernsey, with 16% domiciled in the Isle of Man and a further 16% domiciled in Vermont
- 72% of respondents who do not currently use a captive are exploring the possibility of forming a captive now or in the future
The statistics above clearly show that the use of captives within the risk and insurance profession is already significant, but also has substantial growth potential. As part of its submissions in response to the government's consultation, Airmic stated that the UK should create a class-based or graded regulatory regime for captive insurance companies, comparable to those in place in Bermuda and Singapore.
Impact and next steps
As discussed, a dedicated UK captive regime has clear benefits and would rectify the current under‑representation of captive insurance in the UK market.
Organisations considering establishing a captive should pay close attention to the development of the government's proposals: in particular, the impact on areas such as authorisation, governance and capital, and reporting, the possibility of excluded firms and lines of business, and the tax implications of using a captive.
Our captives practice
Our captives team regularly advises on the use of captives, often as part of an innovative risk-management solution. This includes advising on policy wordings, fronting agreements, reinsurance contracts and supporting contractual documentation.
We represent corporates and trade bodies looking to design solutions, and work alongside many of the brokers who are active in this market. We also advise insurers and reinsurers who provide risk management support to corporates through the use of captive solution.
For more information please get in touch with our key contacts below.
