On 15 July 2025, HM Treasury published a consultation paper in which it proposes that changes should be made to the Risk Transformation Regulations 2017 (SI 2017/1212) (the “RTR”). The RTR currently set out a framework that allows insurance risks to be transferred to capital markets investors through insurance linked securities.
The consultation was launched on the same day as the UK Chancellor of the Exchequer’s Mansion House speech and the government’s announcement of a wide-ranging package of reforms to financial regulation known as the “Leeds Reforms”. See our blog post for more on the wider Leeds Reforms.
Purpose of consultation
In its consultation paper, the Treasury says that the government has received industry feedback that the existing legislative framework for risk transformation activity is holding back UK deals. The consultation therefore examines how the regime might best be adapted to encourage innovation and dynamism within the UK’s risk transformation market and better suit the balance between the regulators’ rulebooks and legislation.
The consultation also focuses on enabling protected cell companies (“PCCs”) to operate as insurers. This ties in to a separate Treasury consultation response document on captive insurance, also published on 15 July 2025, that proposes enabling captive insurers to establish as PCCs. The Treasury believes that this is something that might be particularly helpful for smaller companies who may not wish, or have the means, to establish a standalone captive insurer. For more on the government’s plans for captive insurers see our separate blog post.
Proposals
The Treasury sets out several proposals for change, each at a relatively high level of detail. These include:
Clarifying funding requirements
In response to recent market changes, the government considers that it is appropriate for the Prudential Regulation Authority (the “PRA”) to be given more flexibility than it was previously allowed to determine how transformer vehicles’ funding requirements are met, including how assets are valued and the extent to which all funding must be fully paid in up front.
Opening up the market to non-insurers
The government proposes bringing within the scope of the regulated activity of “insurance risk transformation” the assumption of risks from non-insurers. This would expand the risk mitigation options available to non-insurers, allowing them to engage directly with a transformer vehicle that carries out the regulated activity of insurance risk transformation. The government recognises that the PRA and the Financial Conduct Authority may look to introduce additional rules to mitigate potential arbitrage or conduct risks that could arise.
Increasing flexibility at authorisation
When authorising a new transformer vehicle in the UK, the RTR currently require the PRA to incorporate a limitation on the scope of the vehicle’s regulated activities. The government is concerned that this approach excessively restricts innovation within the risk transformation sector. It therefore proposes removing the requirement on the PRA to incorporate a limitation on the scope of regulated activities in all cases. The PRA would retain the power under the Financial Services and Markets Act 2000 to introduce limitations.
Extending the uses of cells in protected cell companies
The RTR currently limit a cell in a PCC so that it can only enter into a single contractual arrangement from a single counterparty. The government intends to remove this restriction to allow a cell of a PCC to assume risk from more than one undertaking and under more than one risk transformation transaction.
Removing restriction on PCCs only being used for risk transformation
The RTR prohibit PCCs from undertaking any activity which is not risk transformation or directly related to risk transformation. The government proposes removing this prohibition in part, to allow PCCs to effect and carry out contracts of insurance. It would remain the case that PCCs could not be established to undertake other financial services or wider activity. The tax treatment of PCCs authorised as insurance undertakings would be aligned with that of insurance undertakings more generally (i.e. the tax benefits available for qualifying transformer vehicles would not be made available to them).
The result would be that some PCCs could be established and authorised to operate as insurance undertakings and others as risk transformers. Different regulatory requirements would apply to each regulated activity.
The government suggests that establishing as a PCC may not be appropriate for all types of insurance undertaking and highlights that a PCC is a complex corporate structure suited to straightforward business models. Differentiating where a PCC structure would or would not be appropriate would be for the regulators to assess.
Next steps
The deadline for feedback is 8 October 2025.
The government says that, following the consultation, it will respond in the normal manner. It has not provided information on the likely timing of any such response.
For further information, please contact:
Duncan Barber, Partner, Linklater
rebecca.mcgregor@linklaters.com
