Transcript: Regulators propose UK captive insurance regime

Transcript

Ric Lea: There's been a real drive in the sector over the past few years to boost the UK's competitiveness and growth. And one of the ways we've seen that push is the ambition to make the UK a more attractive home for captive insurers. After Treasury first set out its consultation at the end of 2024 on captive insurers in the UK, we're now starting to see the regime take shape. On the 14 July 2026, the PRA and the FCA released consultations setting out their proposals for how the UK captives regime will be brought to life through both prudential and conduct lenses.

A captive insurer is an insurance subsidiary within a group of companies. Most of the time, that group is not an insurance group itself. Now these captives can take different forms, but the type of captives that are covered by these proposals are single parent or pure captives, where the captive insurer's purpose is only to ensure the risks of the companies within that group.

Their proposed scope includes some restrictions on the types of business the UK captives could write. The broad intention of these is to make sure they stick to corporate risks and group risk financing, not for direct consumer or retail facing insurance. Captives will be in a distinct prudential framework, separate from Solvency UK. This will mean, amongst other things, that the capital requirements for captives are going to be different to normal UK authorised insurers. The captive capital requirement will be the higher of 10% of net written premium, 10% of net insurance liabilities, or £100,000. There's also more flexibility in the capital resources allowed to meet this requirement than there is in Solvency UK.

Another area that shows that the regulators are trying to be proportionate and recognise the differences between these captives and other insurers is aiming for a quicker authorisation process and timeline. Their target is to have new UK captive authorised four to six weeks after getting a complete application. And once they are authorised, they'll be supervised as Category 4 firms. Now this is the lowest category of supervision, and it reflects firms which are the lowest risk to the financial system in the event of their failure.

The governance requirements also represent that proportionate approach. A captive specific SMF1 role will be added to the rule book. Captives will only need to have this one SMF position and at least one non-executive director. It'll be down to the firms themselves to determine if conflicts of interest within the group mean that an independent NED is needed. Because it's important to remember that the board of the captive needs to act in the interests of the regulated captive, rather than in the interests of the group as a whole.

On the conduct side, the FCA proposes disapplying a number of requirements that are designed for retail, consumer or insurance distribution activities like consumer duty and some other sections of the FCA handbook. And this is recognising that captives shouldn't really be exposed to consumers in the same way as normal insurers.

The consultations are open until the 14 October 2026 and the regulators expect to implement these proposals in mid 2027. Groups with captives offshore should consider whether these proposals provide a more attractive option for where to domicile their captive. For those without a captive, these proposals might be an opportunity to manage internal risks better under a regime that's fundamentally a departure from Solvency II.