One of the many papers published to coincide with the Chancellor of the Exchequer’s Mansion House speech on 15 July 2025 was an HM Treasury response document on a new captive insurance regime for the UK. The government believes that the creation of a captive insurance market has the potential to create jobs, generate additional insurance market-related activity in the UK, and provide UK businesses with a greater range of risk management options.
The proposals in relation to captive insurers – which insure or reinsure the risk of other companies within the same group – form part of a wide-ranging package of reforms to financial regulation known as the “Leeds Reforms”, unveiled the same day. See our blog post for more on the wider Leeds Reforms.
Background
The idea of a new captive regime has been in the works for a few months now, with HM Treasury having launched an early-stage consultation on captives last November. In that document, the Treasury floated the idea that captive insurers should benefit from proportionately lower capital requirements, reduced application and administration fees, faster authorisations and lighter-touch reporting obligations. For an overview of the Treasury’s consultation see our earlier blog post.
Broad support for a new regime
The response document describes responses received to HM Treasury’s consultation – generally positive, although most respondents wanted to go further than the scope originally proposed, for example by allowing more types of firms to be permitted to set up a captive and to allow more types of risk to be insured by them. The document also makes clear that the government intends to press ahead with its plans for a new UK captive insurance framework, which it believes will support the UK’s standing as a leading international jurisdiction for insurance and risk management business, and provides some pointers as to the regime’s likely features.
The Prudential Regulation Authority (the “PRA”) and the Financial Conduct Authority (the “FCA”) have welcomed the Treasury’s plans and affirmed their commitment to developing a proportionate regime for captives “reflecting the lower risk they pose”.
Some changes from consultation stage
Following its consultation, the government’s vision for the new framework remains broadly intact. It has, however, decided to make a few changes on points of detail.
HM Treasury is still of the opinion that the UK’s framework for captive insurance companies should initially differentiate between two types of captive, direct-writing and reinsurance.
Following its consultation, the Treasury now sees the case for allowing a wider range of firms to benefit from captive insurance arrangements. This could include smaller companies who may not wish, or have the means, to establish a standalone captive insurer,but who may prefer to establish a captive through a Protected Cell Company (a “PCC”). On that note, the response document draws attention to a separate consultation, also launched on the day of the Mansion House speech, on potential changes to the UK’s insurance linked securities (“ILS”) regime (see our blog post). One of the topics that the ILS consultation addresses is the future role of PCCs and how they can be established to facilitate captive insurance business. The PRA and FCA have welcomed the idea of enabling captives to be established within PCCs, given that it may provide a more affordable route for smaller businesses and could also serve as a pilot option for larger corporates taking their first steps towards establishing standalone captives.
The Treasury agrees that there is a case for allowing financial services firms to establish their own captives for specific, limited purposes (e.g. to manage first party only risks, such as a building owned by a firm). Previously, it had suggested that a blanket ban should be imposed under which regulated firms dealing with financial services and pensions would be entirely excluded from establishing (and passing risk to) their own captives. The Treasury had cited concerns around regulatory arbitrage and financial stability risks.
The Treasury also agrees that it should be possible for a broader set of risks to be insured through captives than had been described in its consultation. It suggests that captives might be allowed to write certain life insurance products (e.g. group life fixed-term policies). The Treasury remains of the view that captives should be excluded from writing compulsory lines on a direct basis. However, it acknowledges that captives writing these lines on a reinsurance basis offers an additional level of protection and agrees that this could be permitted.
The Treasury has no plans to create a bespoke regulatory framework for captive managers (third party firms engaged to establish or manage captives). It considers that the existing regulatory framework for insurance intermediaries is sufficient for these purposes, albeit with potential adaptations.
The Treasury is holding firm in its stance that tax incentives are not a necessary component of introducing a modern and competitive captive insurance framework.
Over to the regulators
Most of the running, when it comes to establishing and maintaining the detailed rules of the new regime, will be made by the PRA and the FCA. The baton therefore now passes to the regulators, with the PRA and FCA set to engage in dialogue with stakeholders via subject expert groups as soon as is practicable and consultations on new rules and policies scheduled for launch in the summer of 2026.
The overall plan is to implement the new framework in mid-2027. The Treasury will work closely with the regulators as the new regime is devised.
For further information, please contact:
Duncan Barber, Partner, Linklater
duncan.barber@linklaters.com