UK Captive Insurance Regime Gets Green Light: Implications for Brokers and Risk Managers

On the 15th July, the UK government officially gave the green light for a dedicated UK captive insurance regime, marking a pivotal shift in the country’s risk financing landscape. This announcement delivered by Chancellor Rachel Reeves in her Mansion House speech on July 15, 2025 signalled that HM Treasury will move forward with establishing a regulatory framework for captive insurance companies. The decision follows a multi-year campaign by industry bodies and a government consultation that drew strong support for bringing captive insurers onshore. For brokers and risk managers, this development opens a new chapter of opportunities: it introduces an onshore alternative for corporate self insurance, promises a more proportionate regulatory approach, and leverages London’s status as a global insurance hub. This first part of a series of in depth posts examines the current status of the UK captive regime, its anticipated features, and what it all means for industry professionals.

The City of London, a global insurance hub, is poised to expand its offerings with a new onshore captive insurance regime.

Background: Why the UK is Introducing a Captive Regime

The UK boasts one of the world’s largest insurance markets, yet historically it has lacked a dedicated captive insurance regime. Captive insurance where organisations form their own insurance subsidiaries to insure their risks has been a growing global practice, with around 8,000 captives worldwide and a projected market value of over $150 billion within the next decade. Until now, British companies wanting captives often had to domicile them in offshore jurisdictions like Guernsey, Bermuda, the Isle of Man, or Luxembourg, because no tailored framework existed on the UK mainland. In fact, an estimated 500 UK linked captives are currently based in foreign domiciles. This overseas flight of captives meant lost economic activity and inconvenience for UK firms, as well as a gap in London’s otherwise comprehensive risk management toolkit.

Over the past few years, industry stakeholders including the London Market Group (LMG), brokers, and risk management associations campaigned for an onshore captive solution. The rationale was clear: by hosting captives domestically, the UK could cement its position as a full service insurance centre while offering companies a convenient, reputable domicile for their self insurance vehicles. As Sean McGovern of LMG put it, if London is to retain its position as a global centre for risk transfer, it needs to offer all the tools in the toolkit captives included.

Seeing the potential benefits, the government launched a formal consultation on a UK captive framework in November 2024. Running until February 7, 2025, this consultation sought input on how to design a competitive yet safe regime. It posed 17 questions to stakeholders ranging from capital requirements to regulatory process, and received 42 responses (primarily from insurers, brokers, and trade bodies). Industry feedback was overwhelmingly supportive of creating a UK regime, emphasising the need for simplified regulations, lower capital requirements, and faster authorisations than the status quo. In essence, respondents urged the UK to remove the barriers that had historically made onshore captives unappealing (such as burdensome Solvency II capital rules) and to mirror the flexibility of leading captive domiciles.

This strong mandate set the stage for the July 2025 announcement. The Chancellor confirmed that, in light of the consultation’s findings, the government “intends to proceed at pace” with a UK captive insurance framework. The goal: to repatriate captive business, boost London’s competitiveness, and provide British companies with a home grown solution for self insurance.

Key Features of the Emerging UK Captive Regime

Although detailed rules are still to be developed, the broad contours of the UK’s captive insurance regime have been outlined by HM Treasury and regulators. Risk professionals can expect a framework that includes the following anticipated features:

Proportionate Regulation

Both the government and regulators have stressed that captive insurers will face lighter, tailored requirements reflecting their lower risk profile. Unlike traditional commercial insurers, captives primarily insure the risks of their parent or group, posing limited systemic risk. The regime will therefore streamline capital, reporting, and governance demands on captives. For example, industry feedback suggests significantly lower capital floors than under Solvency II, reduced fees, and faster licensing processes for captives. The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have committed to a proportional approach and acknowledge that current one-size-fits-all rules are overly burdensome for captives. In practice, this could mean a bespoke capital formula or a simple fixed minimum capital that’s much lower than the millions typically required for full insurers. Regulatory reporting is expected to be pared back, focusing only on essential information, and supervision will be “light-touch” but effective, to keep compliance costs reasonable.

Scoped for Captive Types

The UK framework will potentially differentiate between direct writing captives vs. reinsurance captives. A direct writing captive issues policies directly to its parent or affiliates (e.g. insuring a group’s own assets or liabilities), whereas a reinsurance captive might provide reinsurance behind a fronting insurer or to group insurers. This distinction matters because the risk profiles differ. Direct captives keep risk within the group and typically handle internal exposures, while reinsurance captives might interface with the broader insurance market. The regime will apply tailored requirements to each, potentially allowing more streamlined oversight for pure intra-group (direct) captives and slightly stricter (but still proportionate) rules for reinsurance captives that engage in wider risk transfer. This targeted approach aligns with global best practices and ensures neither type is over-regulated.

Excluded Lines and Owners

To maintain financial stability and avoid regulatory arbitrage, the UK has decided that certain lines of business and types of companies cannot use captives. Notably, life insurance risks will be excluded, given their long-term nature and reserving complexity, which regulators feel aren’t suited to a simplified captive model. Also off the table are compulsory third party insurances like employers’ liability or motor third party liability these protect the public and must remain in the traditional market to ensure claimants’ interests are safeguarded. Furthermore, regulated financial services firms (banks, insurers, pension funds) won’t be allowed to form captives for their own regulatory risks. This prevents, say, a bank from shunting its risks into a captive to game capital rules. These exclusions are similar to those in other regimes and are aimed at keeping the captive sector focused on its core purpose (corporate and commercial risks) without undermining consumer protection or broader financial oversight.

Protected Cell Companies (PCCs)

Perhaps the most significant feature is the introduction of Protected Cell Company structures for captives. The government has pledged to enact legislation enabling captives to be established within PCCs. In a PCC, a single legal entity (the core) contains multiple segregated cells; each cell operates like an independent captive with its own assets and liabilities but shares some infrastructure and capital with the core. This model, pioneered in places like Guernsey, dramatically lowers the cost and time needed to set up a captive. The UK sees PCCs as a way to widen access to captives, especially for smaller and mid-sized businesses that could never justify a stand alone captive. Cost savings of up to 50% and setup times reduced from months to days have been observed under PCC structures. By pooling resources under a core, companies can “rent” a cell to use as their captive, avoiding the need to capitalise and run a whole insurance company themselves. The regulators welcomed this move, noting that PCCs provide a more affordable entry point and even a good “pilot” arrangement for larger corporates taking first steps before possibly launching a standalone captive. The UK already has PCC legislation for Insurance Linked Securities vehicles, which could be adapted as a foundation for captive PCCs. Ensuring robust ring fencing of each cell’s assets will be a key task for the PRA, but if done right, PCCs are poised to be a cornerstone of the UK regime, offering unprecedented flexibility and speed for captive formation onshore.

Governance and Management

Early indications suggest that the UK will not require a completely separate regulatory framework for captive management firms or third party managers. Many captive managers (e.g. firms like Marsh Captive Solutions, Aon Captive Services) are already regulated as insurance intermediaries. The government’s view is that existing regulations (including the Senior Managers & Certification Regime) can cover oversight of captive managers without needing a new license category. This pragmatic stance means the focus remains on the captives themselves, and it should help streamline the regime’s rollout avoiding additional red tape or delay from creating a new regulatory regime for managers. In short, those managing captives will continue to be regulated much as they are now, and the regime’s new rules will centre on captive insurers and PCC cores.

Summary

In summary, the emerging UK captive framework is designed to be “fit for purpose”, balancing lighter touch oversight with the prudence expected of an onshore regulator. It aims to give companies the benefits of popular captive domiciles (like low capital floors, rapid setup, PCC options) within a UK-regulated environment. This combination of proportionate yet credible regulation is what policymakers hope will make the UK a compelling domicile for captives.