As the UK government opens the door to a consultation on a UK captive insurance regime, industry experts ponder whether the nation is ready to embrace the opportunity to diversify its risk management landscape
Imagine a world where UK businesses no longer need to venture offshore to manage their own risks through captive insurance companies. That vision is edging closer to reality as UK Chancellor Rachel Reeves announced in November a three-month consultation aiming to establish a competitive captive insurance regulatory framework.
The move has ignited a wave of enthusiasm across the industry, with businesses viewing this as a historic opportunity to position the country at the forefront of captive insurance. "The consultation is a positive development for our industry," says Will Thomas-Ferrand, international practice leader at Marsh Captive Solutions.
"A UK captive regime has the potential to provide great benefits, not only for the insurance market but for the wider ecosystem that supports it and, most importantly, the ecosystem that is supported by it. It is really positive for business because it will offer them additional options to help manage risks."
A timely opportunity
The UK's move to consider a captive insurance regime comes at a critical juncture. For years, British companies seeking the benefits of captive insurance have had to look offshore, setting up captives in jurisdictions like Guernsey, Bermuda, and Malta. This often meant grappling with logistical challenges and concerns over the perception of offshoring.
According to the London Market Group (LMG), the global captive insurance market is projected to reach US$161 billion by 2030, yet the UK currently captures none of this business, despite its long-standing prominence in global insurance markets.
The country has the third-largest insurance and long-term savings market in the world and the largest in Europe. The London Market stands as the largest global hub for commercial and specialty risk, attracting business from over 200 territories to cover complex risks such as cyber threats and terrorism.
"I make two relatively simple points for pressing for this change," says Caroline Wagstaff, CEO of the LMG. "The first is that if London is to remain the global risk transfer centre, it needs to be able to offer all the tools in the toolkit. And without a UK captive regime, we are missing a critical component."
"The second point is that this isn't just good for the insurance market; it's good for UK Plc — giving companies options for simplicity and efficiency," Wagstaff adds. "Establishing your captive down the road from your UK office enables a seamless working relationship and economies of scale."
For some time now, the UK insurance industry has been urging the government to develop regulatory guidelines that support the growth of UK-based captive insurance vehicles, especially after years of steadily rising insurance premiums pushing businesses to seek cost-effective risk management solutions. With the long-awaited consultation underway, there is hope about the prospect of bringing this facet of risk management closer to home.
Key questions under review
The UK government’s consultation has outlined several critical areas that will shape the country’s potential captive insurance regime. One of the primary considerations is whether to permit both reinsurance and direct writing captives from the outset. Some industry experts view reinsurance captives, which reinsure a group's own risks through established fronting partners, as a logical starting point. Their reliance on the commercial insurance industry provides additional layers of oversight and mitigates risk.
On the other hand, direct writing captives, which issue policies directly to their parent companies, offer cost and operational efficiencies by reducing reliance on fronting arrangements. Experts suggest a phased approach, starting with reinsurance captives and gradually expanding to include direct writing captives. This strategy may balance the need for regulatory caution with the long-term flexibility businesses seek.
The scope of risks that captives should be able to cover is another area under review. The consultation considers whether captives should cover compulsory insurance lines, like employers’ liability or life insurance products. While expanding capabilities could make captives more versatile for businesses, it would require stricter regulatory measures to safeguard policyholders and financial stability. To mitigate risks, the government is also proposing to exclude regulated financial and pension firms from setting up captives and to restrict captives from underwriting high-risk lines such as life insurance or compulsory coverages.
The potential role of protected cell companies (PCCs) is also a significant consideration. Currently, the UK limits PCCs to insurance-linked securities (ILS). Expanding this framework to include captives could provide smaller businesses, particularly small and medium enterprises (SMEs), with a more accessible pathway to captive insurance. PCCs could lower barriers to entry by allowing businesses to manage risks without the substantial capital commitment required for a standalone captive.
The government has clarified its stance on tax incentives, stating that captives would need to be UK tax residents, with measures in place to prevent unintended tax consequences. While no tax incentives will be offered, industry experts believe the UK’s infrastructure and expertise make it well-positioned to attract captives.
Boosting the economy
The financial stakes are high. Studies indicate that each captive insurer established in the UK could contribute around £225,000 annually to the economy. The LMG estimates that if companies bring their captives back home, it could inject £153 million into the UK's economy, filling a significant gap in London's specialist insurance market.
"More businesses than ever before are considering captives for the first time," observes Thomas-Ferrand. "The need is present — and this is driving formations in many locations around the world."
Adding to this point, Wagstaff stresses: “A UK captive domicile would offer an extensive financial services ecosystem; London-based global brokers with extensive captive consulting experience, an unrivalled range of local banking and asset management options, and the world’s largest and most sophisticated reinsurance market.
“New business would be provided to these sectors, and new jobs in captive management would be created, as decision-making on the captive must be taken within the jurisdiction it is based.”
Data from the LMG highlights the opportunity. The London insurance market, already employing around 60,000 people and contributing nearly £50 billion to the economy last year — a 26 per cent increase from 2020 — stands to benefit significantly from an influx of captive activities.
The LMG projects that the universe of potential UK captives numbers just under 700, ranging from those who may be more likely to around 350 companies who may not have considered one before. Wagstaff emphasises: “The growth of the captive industry around the world clearly demonstrates the demand by businesses for this risk management tool.
“There has also been a significant increase in onshore captive domiciles in the US and in Europe which show that there is demand to have captives closer to the main business hub. All of this makes it the right time for the UK to actively explore its options.”
The path ahead
Despite the enthusiasm surrounding the UK’s potential captive insurance regime, several challenges must be addressed. Brexit has complicated cross-border insurance operations, as UK firms can no longer passport into the European Economic Area. This shift suggests that UK-based captives may be better suited for reinsurance rather than directly underwriting in multiple countries.
Regulatory considerations also loom large. The Financial Conduct Authority (FCA) will have a central role in shaping the framework. While maintaining its high standards, the FCA may need to adjust its approach to accommodate the specific needs of captive insurers without compromising financial stability.
Industry experts believe the FCA might look to other countries for best practices.
France, for instance, introduced captive legislation in 2023 and has since witnessed the establishment of nearly 20 captives. “What we have seen from the introduction of a captive regime in France is that a number of domestic companies have used it to create a captive for the first time, demonstrating that there is a segment of the market that did not want to use this tool when they had to do it offshore,” Wagstaff notes.
She adds that similar demand could emerge in the UK. “The government is very keen to hear from all parts of the value chain, from businesses to brokers, fronting insurers to advisers and captive managers,” Wagstaff says. “We have had tremendous market support for this campaign from across all of these sectors, and we would encourage them to take part in the consultation and tell the Treasury what it will take for the UK captive regime to be properly competitive.”
Wagstaff emphasises the need for a balanced regulatory approach: “The key that needs to be resolved is to create an approach by the regulators that is designed and structured in a balanced and proportionate way, considering the reduced prudential risk assessment of the relevant captive vehicle.
"If the UK captive regime is to be internationally competitive, it is imperative that the approval and supervisory regulatory processes are fit for purpose.”
Meanwhile, Thomas-Ferrand highlights the benefits a UK-based captive regime could offer businesses.
“The first and most obvious advantage is that a captive could be located in the UK. This will have significant appeal to many companies that may not have been willing to use an overseas captive location because of logistical, legal, structural, or travel issues,” he explains.
“Effectively it removes a barrier that has existed for some businesses. Other advantages will become clearer as the consultation continues, and we look forward to sharing updates with our clients.”
So, is the time right for the UK to adopt a captive regime? Many industry insiders believe it is.
"An ambitious regulatory model for captives, combining a proportionate risk-based solvency regime with London’s global reinsurance market, would make the UK a unique and attractive location for captives," says Wagstaff.
Thomas-Ferrand echoes this sentiment, stressing the growing importance of captives in today’s risk landscape. “Captives are of more strategic importance to managing risk than they have ever been before. A UK captive regime will allow the UK to lead in the innovative area of risk.”
“The world’s risks are getting more complex and uncertain. Captives have been proven drivers of innovation and development when insurance hasn’t yet adapted to meet the changing risks or markets. Having captives in the UK will help the incredibly strong and historic insurance market that has been present in the UK for centuries to evolve at a pace that outstrips other regions.”
The future of captive insurance in the UK remains uncertain, but there is a significant opportunity for a well-designed regime to strengthen the UK insurance market, retain jobs, and keep economic activity that might otherwise take place offshore.
As the consultation progresses, businesses across the UK are watching closely, eager to see how it might reshape the industry and contribute to the broader economy’s growth.
