UK confirms captive regime plans
Risk and insurance managers have been waiting for the government to make its move
The UK’s risk and insurance community has welcomed confirmation that the UK will pursue new rules to create a captive market for the country, following moves by other jurisdictions, including France and Italy, to offer companies risk transfer options through onshore captives.
Chancellor Rachel Reeves announced the long-awaited launch of a consultation on a new framework to underpin its plans at her first Mansion House address to the city.
“The government is also consulting on introducing a new framework for UK-based captive insurance companies to make the UK insurance market a more attractive hub for businesses seeking efficient risk solutions,” Reeves said.
Trade body for London’s commercial insurers the London Market Group (LMG), which has long lobbied for change to create a UK captive market, said that a UK regime “could deliver an important risk management tool for UK and international plcs”.
LMG had anticipated that the Chancellor would use her Mansion House speech to announce the consultation after it was not featured in last month’s budget. The Labour government was reported to be supportive of the proposal, after several stop-starts with previous governments.
Caroline Wagstaff, CEO of the LMG, said: “It is vital that the government hears directly from UK plc, captive owners, managers, brokers and insurers – as well as businesses who may not have considered a captive before – about what they need to help make a UK market thrive.”
The consultation is now live, and risk and insurance managers are urged to submit their responses before it closes on 7 February 2025.
Wagstaff said London “needs to be able to offer all the tools in the toolkit” to retain its position as a global centre for risk transfer, adding that “captives are an increasingly important part of that mix”.
Also responding to the news, Julia Graham, CEO of UK risk management association Airmic, said: “In a context of complex challenges, the London insurance market retains a leading global position with an envious world class reputation. As part of this position, captives should play a mainstream role and in support of this, the UK should have a proportionate regulatory regime for captives.”
Graham added that captives are taking centre stage as long-term risk financing strategies for many corporates.
LMG has been in discussions with the Treasury, as well as regulators the Prudential Regulation Authority and the Financial Conduct Authority, about how the proposed regime might look. The LMG also said it supports a proportionate regulatory regime for captives in the UK.
LMG said the Treasury has “recognised the exciting opportunities presented by this rapidly growing market” and said it was grateful for the support of the Chancellor and economic secretary to the Treasury and city minister Tulip Siddiq.
“A UK captive domicile would offer UK plc the ability to build resilience and risk management here at home,” the trade body said, “while benefitting from 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.”
Broker Marsh McLennan also welcomed the government’s announcement. Chris Lay, CEO of Marsh McLennan UK, said it is an important step forward in laying the ground for the UK to become a home for captive insurers.
“The regulatory regime must be developed to allow a UK captive regime to compete on the international stage,” Lay said. “Establishing a proportionate and competitive UK captive framework could deliver a major boost to the UK insurance market, demonstrating our innovation and signalling we are open for business.”
Seeking views from the risk and insurance industry, the consultation paper says the government acknowledges that any new approach would need to be proportionate to reflect the risk profile of captive insurers. “The government is aware that the regulatory approach will be crucial to the attractiveness and success of a captive insurance market in the UK,” it says.
It adds that it has heard representations that a captive regime should lower capital requirements for captive insurers, reduce application and administration fees, ensure a faster authorisation process and reduce reporting requirements compared to those for insurers and reinsurers.
Detailed proposals and rules will be for the regulators, the consultation said, but it set out approaches that could be considered, including differentiating between direct-writing captives and reinsurance captives, and excluding certain activities and types of firm from setting up a captive, such as financial services regulated firms – insurers, banks and pension funds – and limiting lines of business, excluding life and compulsory line of insurance.
It also says it believes a separate approach for regulating captive managers is not needed, with many potential managers of captives already likely be an existing insurer or intermediary, and could be regulated under its existing Senior Managers and Certification Regime.
The Chancellor announced the consultation alongside a wider package of reforms for the country’s financial services sector to drive growth, recognising that the UK’s status on the global financial stage cannot be taken for granted. Reeves said since the financial crisis, regulatory changes that intended to eliminate risk taking “has gone too far”.
“The UK has been regulating for risk, but not regulating for growth,” she said, telling the Mansion House audience that reform of the regulatory model is needed to unlock innovation and drive growth.
She announced growth-focused remits for the sector’s regulators and the launch of the first Financial Services Growth and Competitiveness Strategy next year. Reeves named insurance and reinsurance as one of five priorities for growth opportunities, alongside FinTech, sustainable finance, asset management and capital markets, which will feature in the new strategy.
The Chancellor also said she will publish draft legislation to regulate ESG ratings providers, which she said will boost investor confidence in sustainable companies, continuing the previous government’s plans to regulate the sector.