UK Regulators Propose New Captive Insurance Regime to Boost Competitiveness

UK financial regulators have proposed a new framework to allow captive insurers to be established in the country for the first time, part of a wider push to make the UK more competitive as a financial centre. Captive insurance is a form of self-insurance in which a business uses a regulated insurance subsidiary to finance its own risks from internal resources rather than paying premiums to a third-party insurer. Currently, no captives are established in the UK, with firms typically using domiciles such as Bermuda, Guernsey and Luxembourg. The proposals from the Financial Conduct Authority and the Prudential Regulation Authority would introduce a proportionate regime for single-parent, or 'pure', captives that insure or reinsure the risks of their parent group. Key features include a streamlined authorisation process targeted at four to six weeks, exclusion from the full Solvency UK and Consumer Duty requirements, lower capital and reporting obligations, and a flexible capital framework, supported by dedicated supervisory resource. The consultation closes on October 14. If adopted, the regime could give large UK-based companies a domestic option for managing their risks and deepen the UK's specialty insurance market, though the effect will depend on the final rules and tax treatment.