Seeking home advantage: a new UK regulatory framework for captive insurance

It’s coming home! That was the tongue-in-cheek claim made by Shoib Khan, the PRA’s Director of Insurance Supervision, in his  June 2026 speech at the annual Association of Insurance and Risk Managers in Industry and Commerce (AIRMIC) conference. Likening the PRA’s imminent regulatory consultation on a new UK captive insurance regime to England’s long-awaited emergence from the tunnel onto the World Cup stage, Khan heralded the UK’s bid to end their own “thirty years of hurt” and bring captive insurers back to our shores.

Since then, we’ve had front row seats to the ebullient optimism, dogged determination and, ultimately, despair which accompanied England’s footballing hopes being dashed for another four years. Will the UK government’s ambitious drive to establish a world-leading captive insurance segment in the UK end as a similarly heroic “near miss”, or is captive insurance really coming home?

What is captive insurance?

Most businesses require insurance to help protect their owners from financial impacts associated with adverse events. Insurance can provide cover, for example, for a business’ staff, premises and stock, for its ability to continue operating and for unexpected liabilities and legal costs.

Many businesses will obtain insurance cover from a third-party insurer, often via the services of an insurance broker. However, for some businesses there may be benefits to “in-sourcing” their insurance cover. Insuring business risks in-house can be more cost-effective, may facilitate obtaining coverage for specialist risks which are harder for external insurance markets to accept or price and can also contribute to a stronger focus within businesses on understanding, analysing and managing the risks they run. Using an in-house insurer can also offer businesses direct access to reinsurance, or wholesale insurance cover which insurers themselves can take out to offset insurance risks on their books.

A desire to keep insurance coverage within a business is where captive insurance companies come in. A captive insurance company (also referred to as ‘captive insurer’ or simply a ‘captive’) is an insurance subsidiary within a group of companies. A captive’s business consists wholly or mainly of insuring (and/or reinsuring) the risks of its fellow group companies, or closely related entities such as supply chain partners, franchisees or minority-owned associates.

Groups which establish a captive are often not themselves insurance groups (although insurers can establish captives as well). Although some smaller businesses and public sector entities do establish captives, users are typically large, often multi-national corporate and professional services groups.

Captives may be self-managed (i.e. run by the group of which they form part and whose risks they insure or reinsure). However, many captives are instead managed by third party captive managers (CMs). CM services are often provided by specialist teams at large insurance brokerages.

Why is the UK government keen to encourage more UK captives?

The UK government’s November 2024 consultation on captive insurance explored the importance of UK-based captives for the growth and competitiveness of the UK insurance sector. 

The consultation points to rapid growth in the global captive insurance market, citing the existence in 2021 of around 7,000 captives with premiums approximating USD69 billion. Worldwide, premiums are projected to grow to USD161 billion by 2030. However, despite the widespread use of captive insurance by both UK and international companies, and the UK’s world-leading insurance sector, captives tend to be incorporated overseas. The consultation estimates that around 500 UK-associated captives are currently located in offshore jurisdictions. 

The UK government believes this may represent a missed opportunity for the UK insurance sector and the UK economy more widely. Whilst gauging the benefits of an active UK captive insurance segment is complex, prospective gains from encouraging more UK-based captives include job creation, enhanced workforce skills and increased tax revenues. There may also be positive impacts from cost and efficiency savings for UK corporate groups who may be more willing to explore opportunities offered by a UK, rather than an overseas, captive.

Why are changes to the current UK regulatory framework for captives needed?

It is already permissible to set up a captive under the existing Financial Services and Markets Act (FSMA) regulatory framework for firms which carry on the regulated activities of “entering into” and/or “carrying out” contracts of insurance in the UK. However, at present, despite the fact that captives’ business is restricted to insurance of risks for its own group or closely related entities, prospective UK-resident captives are subject to many of the same authorisation, governance, capital and reporting requirements as insurers and reinsurers which serve the public insurance markets. 

The UK government’s view is that this “one size fits all” insurance regulatory approach may not be proportionate for captives, given that risks to policyholders and financial stability are greatly reduced when a captive is only underwriting risks associated with its parent group.  The government indeed contends that the Uk’s regulatory framework may be constraining the potential for UK captives, given that other jurisdictions have bespoke regulatory regimes specifically for captives which, when compared with rules for other insurers and reinsurers, can offer:

• Faster authorisation processes
• Lower capital requirements 
• Reduced ongoing compliance obligations
• Lower regulatory fees.

By way of example, Guernsey is one jurisdiction offering a bespoke regulatory framework for captives. The Guernsey Financial Services Commission (GFSC) has been successful in positioning itself as a knowledgeable and open regulator who is ready to engage with market participants and deliver consistent and predictable oversight. Guernsey’s regulatory approach, combined with its low taxation environment, have helped establish the island as a go-to jurisdiction for captive insurers. According to the GFSC, Guernsey was home to nearly 200 captives at the end of 2025, with many UK FTSE100 companies maintaining a Guernsey captive. 

What action has been taken to build a more captive-friendly environment in the UK?

In its July 2025 response to its captive insurance consultation and in Rachel Reeves’ 2025 Mansion House speech, the UK government confirmed its intention to take forward plans for a new UK regulatory regime for captives.

The PRA and FCA were tasked with designing an appropriate regulatory framework in line with their respective statutory objectives, including their new shared secondary growth and competitiveness objectives. The regulators duly took up the gauntlet, establishing a range of Subject Expert Groups to try to ensure that any new captive regime would address stakeholder priorities and achieve the UK government’s stated objectives.

A year on, in July 2026, the regulators launched consultations on proposals for the first phase of the project to establish a new UK captive insurance regulatory framework. The PRA published CP11/26 “A tailored regime for captive insurance”, with the FCA publishing its own consultation CP26/29 alongside.

What type of captive is covered by current PRA and FCA proposals?

The current phase of consultation relates only to single-parent (or so-called “pure” captives).

Pure captives are only permitted to insure or reinsure risks of their group entities and parties connected to the group. The restriction of the regulators’ current consultation to this entity type is designed to balance the disadvantages of a more limited initial scope against the benefit of delivering an initial UK captive regime on an accelerated timeframe.

Another common form of captive in other jurisdictions is a protected cell company (PCC). A PCC operates as a single legal company divided into a central "core" and multiple separate insurance "cells". The assets and liabilities of each cell are legally separate from the core and from all other cells. This means that if one cell takes excessive losses, its creditors can only claim the assets within that specific cell, keeping the rest of the cells and company solvent. PCC captives are usually set up and run by CMs. Businesses can then "rent" an individual captive cell to insure their own risks. This allows groups to use a captive insurance mechanism without the high costs and effort of setting up their own captive.

Currently, PCCs are only permitted in the UK for use in risk transformation involving insurance special purpose vehicles. PCCs cannot be used for mainstream insurance purposes. HM Treasury has committed to bringing forward legislation which would allow insurance PCCs to operate in the UK. The regulators have expressed an intention to consult going forward on inclusion of PCC captives (and other forms of captive) in the new captive insurance regime once related legislation is in place.

What over-arching approach for captives has the PRA consulted on?

The PRA’s approach to the captive insurance regime proposed in CP11/26 has the PRA’s statutory objectives at its heart.

First and foremost, the PRA stresses that the new framework should promote captive insurers remaining safe and sound and policyholders being appropriately protected. This is achieved by limiting the types of insurance and reinsurance which captives can underwrite, and restricting the range of policyholders served. The safeguards applied by the PRA are then proportionate to the level of risk which captives might pose to policyholders or wider financial stability. Thereafter, the PRA’s aspiration is for a regulatory framework which is internationally competitive and capable of supporting growth of the UK captive sector.

Key features of the PRA’s proposals include:

• Establishing a bespoke framework for captives which is separate from the UK Solvency regime for insurers
• Limiting a captive’s risks solely to its own group risks and those of a limited range of material, related entities up to an overall percentage volume cap
• Restricting certain business lines (including own group compulsory insurance and employee benefits) to reinsurance only, or prohibiting them altogether (e.g. investment risks, pensions)
• Setting lower and more flexible capital resource requirements for captives than those which would apply to other insurers under the UK Solvency framework
• Introducing streamlined governance and Senior Manager requirements
• Trailing an accelerated timeframe of 4-6 weeks from submission of complete applications for authorisation and Senior Manager approvals, with pre-application engagement offered
• Imposing a reduced ongoing reporting burden and charging lower application and ongoing regulatory fees.

How is the PRA’s approach complemented by FCA proposals?

The FCA’s parallel consultation mirrors the tone of the PRA’s proposals, whilst being informed by the FCA’s own statutory objectives.

The ability of corporate groups to access the option of UK captive insurance supports greater competition in the insurance markets in the interests of policyholders. As the range of policyholders whom captives will be allowed to serve is limited, relaxation of FCA consumer protections is feasible without compromising confidence in UK insurance markets. Like the PRA’s, the FCA’s proposals aim to promote the competitiveness and growth of the UK insurance markets, as highlighted in the FCA’s 2026 Insurance Regulatory Priorities Report.

Key FCA proposals for captives include:

• Matching the PRA’s proposed 4-6 weeks for authorisation and Senior Manager approvals
• Disapplying retail regulatory requirements including:
  • Consumer Duty (Principle 12)
  •  Insurance specialist customer-focused reporting e.g. value measures, pricing (SUP16)
  • Insurance product governance rules (PROD)
  • Retail intermediation and adviser competency rules (ICOBS and TC)
  • Complaints and redress oversight (DISP and COMP)
• Limited ongoing reporting requirements, instead relying mainly on notification obligations in SUP15
• Lower authorisation and ongoing regulatory fees.

Is captive insurance really “coming home”?

Industry reaction to the regulators’ proposals has been broadly positive. Whilst there will always be a Roy Keane-style tendency to look for more, as one pundit at the PRA’s recent consultation workshop remarked, “We were hoping for Guernsey and we got Guernsey plus”. With the right regulatory approach in place, it is not difficult to imagine UK-based groups seeing benefits from dealing only with a single home jurisdiction when establishing a captive.

Yet getting through qualification is not a guarantee of lifting the trophy. UK groups with existing overseas captives may baulk at the costs and effort of re-locating them, especially where existing processes and outsourced providers are well-established and working well. Can a new, as yet untested, proposition really tempt captives back to the UK?

Perhaps then the success of the UK’s bid for glory instead depends on the extent to which new regulatory rules can either tap existing unrealised UK demand for captives, or even increase that demand by ‘mainstreaming’ the use of captive insurance as a risk management tool amongst a wider target audience of UK groups. So, a mission not so much to change the team but to change the game itself.

It’s a strategy whose outcome still seems, in football parlance, “too close to call”. The PRA and FCA proposals are certainly a brave and innovative step to start the ball rolling on a new era for UK captive insurance. Yet, like most hardy England supporters who ride the World Cup rollercoaster, we’ll just have to wait and see how these training ground tactics play out on the biggest stage. Penalties, anyone?