PRA and FCA consult on proposed UK insurance captive regime

Colin Read, financial services regulatory expert at Pinsent Masons, was commenting after the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) published parallel consultation papers on a new, bespoke regulatory framework for captive insurance in the UK.

Captive insurance is a method of self-(re)insurance and risk management that gives businesses greater control over insurance programme costs and managing inherent risks.

Initial plans were outlined by the government last July in its response (23-page / 141KB PDF) to an earlier consultation (21-page / 163KB PDF) by the Treasury on introducing a captive insurance regime in the UK.

According to the Treasury, an estimated 300-500 businesses that operate in the UK already operate captives in offshore domiciles. However, there is not currently a domestic captive market because captive insurance companies are subject to the same compliance and reporting requirements as insurers and reinsurer, making the UK an unattractive destination for captive insurers able to access other arrangements.

The plans to create a 'new competitive framework' for captive insurance form part of broader proposals aimed at supporting the UK’s competitiveness in the financial services sector.

The PRA and FCA have now each published their own proposals on the new regime, with the PRA’s proposals focused on the prudential aspects of the regime and the FCA’s focus being on conduct matters. The new regime will be separate from the UK Solvency II framework.

The two consultations reflect a common position, including proposals to lower capital and reporting requirements proportionately, streamline and speed up authorisation processes, and introduce a flexible capital resources framework. The PRA consultation also outlines proposals for additional restrictions to prevent captives from writing certain lines of business together with restrictions on what basis the business is written i.e. on a direct or a reinsurance basis.

The proposed regime is currently for ‘single-parent’ captives only – sometimes called ‘pure captives’ – which are only permitted to insure or reinsure the risks of their parent company and other entities within the same group together with parties materially connected to the group. Both regulators are expected to consult on the extension of the regime to incorporate protected cell companies (PCCs), once relevant legislation is in place.

The consultation papers mark “a significant milestone” in the development of a UK captive insurance market and demonstrate “a clear commitment by the regulators to making the UK a more attractive domicile for captive insurance structures,” said Read. “The combination of reduced capital and reporting requirements, a flexible capital framework and a streamlined authorisation process is likely to be welcomed by UK corporates that have historically looked offshore when establishing captives."

If implemented in their current form, Read said the proposals could “strengthen the UK's position as a global centre for insurance and risk management by giving businesses a viable domestic alternative to established captive jurisdictions.”

The consultations also provide important clarity on the regulators’ expectations around governance and oversight, helping to balance competitiveness with prudent regulatory safeguards.

“Businesses, brokers and advisers will now be considering whether the UK may become a more compelling location for future captive structures,” added Read. “The planned future extension to protected cell company arrangements could further broaden access to the benefits of a captive regime over time.”

The parallel three-month consultations will close on 14 October 2026, with implementation expected in mid-2027 once both regulators have published their final rules and policies.