The PRA and FCA both issued consultation papers on a tailored regime for captive insurers on 14 July 2026. These consultations were first announced as part of last year’s Mansion House package, and are published alongside this year’s Mansion House announcements. The consultations are based on a scope and overall policy direction set by His Majesty’s Treasury (HMT), which underwent consultation from November 2024 to February 2025 with HMT setting out its position in July 2025.
The PRA’s CP11/26 sets out the proposed prudential framework for the regime, while the FCA’s CP26/29 sets out the proposed conduct parameters.
The proposals are intended to make the UK a more attractive domicile for captive insurance, while maintaining appropriate safeguards for safety and soundness, and policyholder protection.
The regulators are proposing a distinct regime for single-parent captives, separate from Solvency UK, with proportionately lower capital and reporting requirements, a more flexible capital resources framework, a faster authorisation process and tailored governance expectations.
In this article
What does this mean?
Scope of the regime
The proposed regime would initially apply only to single-parent captives, sometimes referred to as ‘pure captives’. These are insurance or reinsurance entities established and owned by a parent group to insure or reinsure their own risks and certain closely connected parties.
The regulators consider single-parent captives to have a lower risk profile than conventional insurers because the interests of the captive and its group policyholder are generally aligned, information asymmetry is reduced, and wider market or consumer impacts are more limited.
However, the initial phase would not cover protected cell companies, group captives (insurance undertakings owned and controlled by multiple firms that participate as policyholders, with ownership, governance, and economic outcomes shared among members) or association captives, commonly established by trade associations or professional bodies insuring the risks of their members. The PRA intends to consult on protected cell company structures once the necessary legislation is in place.
The proposed scope also includes important restrictions on the types of business UK captives could write. In broad terms, the regime is intended for corporate and group risk financing, not for direct consumer or retail-facing insurance. The FCA proposes that captives should not be permitted, on a direct basis, to cover consumers, relevant SMEs that do not meet the FCA Handbook definition of “large commercial customer”, or certain policy stakeholders such as leaseholders of multi-occupancy buildings insurance.
The PRA and FCA also propose restrictions around higher-risk or more sensitive lines of business. These include, depending on whether business is written directly or by way of reinsurance, areas such as compulsory lines, employee benefits, life insurance and corporate risks with named individuals.
As well as this, certain material non-group undertakings such as closely integrated suppliers, service providers and participants in owner-controlled insurance programmes are also set to be restricted. Employee benefits were initially out of scope for captives in the original HMT consultation, but have been included, with some restrictions following industry response (see below).
| Compulsory lines | Corporate risks with named individuals | Multi-occupancy building insurance | Employee benefits | All other non-life corporate risks | |
| Group companies | Reinsurance only | Reinsurance only | Reinsurance only | Reinsurance only | Direct or reinsurance |
| Material non-group undertakings | Reinsurance only | Reinsurance only | Reinsurance only | Not permitted | Direct or reinsurance |
In practice, this means the UK regime is likely to be most relevant to larger groups with a clear corporate risk financing need and sufficient scale to establish a standalone captive.
Prudential framework and capital requirements
The PRA is proposing a distinct prudential framework for UK captives, separate from Solvency UK, calibrated to the risk profile of single-parent captives.
The proposed captive capital requirement (CCR) would be the higher of 10% of net written premiums or 10% of net insurance liabilities, subject to a £100,000 minimum. The baseline £100,000 requirement would need to be met with paid-in capital, while additional capital requirements could be met using a wider range of eligible resources.
Boards will still need to consider whether the minimum regulatory requirement is sufficient given the captive’s actual risk profile, including concentration risk, claims volatility, reinsurance dependency, liquidity risk and exposure to long-tail or hard-to-place risks.
The PRA is also proposing a more flexible capital resources framework. This includes recognition of parental support arrangements and letters of credit, subject to relevant criteria. Loan-back arrangements (intercompany loans) would also be permitted, provided the captive continues to meet its capital requirement and manages associated liquidity and group counterparty risks.
The proposals include updating the Group Supervision part of the PRA rulebook to ensure captives are fully consolidated within groups where there is at least one Solvency UK insurer as well as a UK captive. This aims to make sure the intentions of group supervision are maintained, while maintaining a proportionate approach where there is no Solvency UK insurer, reducing the supervisory burden for those groups where there is less risk to the PRA’s objectives.
Authorisation process and timelines
The PRA and FCA are proposing a faster process than the usual authorisation timeframe, with the regulators aiming to determine complete applications within four to six weeks.
Applicants will need to demonstrate that they meet the relevant threshold conditions and are ready, willing and organised to conduct regulated activities. This means firms should not treat fast-track authorisation as a light-touch process.
Once authorised, the PRA intends to classify UK captives as Category 4 firms, the lowest categorisation the PRA applies to insurers, reflecting its view that captives are low risk to the financial system in the event of their failure.
FCA conduct rules
The FCA is proposing to disapply a number of requirements that are designed primarily for retail, consumer or broader insurance distribution contexts. These include the Consumer Duty, ICOBS, PROD, DISP, CASS and regular FCA reporting under SUP 16.
This reflects the FCA’s view that captives should not be directly exposed to consumers, relevant SMEs or certain policy stakeholders, for example a leaseholder under multi-occupancy building insurance, in the way conventional insurers may be.
Governance
The PRA proposes to introduce a captive-specific SMF1 function, recognising the role of a SMF1 in a captive insurer is different to that in other regulated businesses. UK captives would require only this one SMF position, rather than the current three which apply under Solvency UK rules. This would align with the rules for UK ISPVs.
Under the proposals, UK captives would also be required to have one non-executive director. The PRA also expects firms to consider appointing an independent NED where proportionate to the nature, scale and risk profile of the captive, particularly to help identify and manage conflicts of interest arising from being part of the same corporate group.
The regulators emphasise captive boards would need to act in the interests of the regulated captive, not simply as an extension of the parent group. This is particularly important where there are potential conflicts between the parent’s commercial interests and the captive’s prudential resilience.
The regulators identify a number of inherent conflict risks in captive structures, including owner versus insurer, policyholder dominance and capital extraction versus resilience. Firms will need to evidence that these conflicts are identified, managed and escalated appropriately.
Outsourcing will also be a supervisory focus. Many captives rely on captive managers, group functions, advisers and other service providers. The FCA also expects many captive management arrangements to constitute material outsourcing. Boards and Senior Managers will remain accountable for outsourced activities. Firms should, therefore, ensure captive management agreements, service levels and MI is fit for purpose.
What do firms need to do?
Evaluate strategic fit: Determine whether a UK captive would support the group’s risk financing strategy.
Assess eligibility: Firms should assess whether their proposed captive structure, insured risks and policyholder population fall within the intended scope of the UK regime.
Firms which do not currently have a captive insurer within their organisation should consider whether the proposals set out by the PRA and FCA represent an opportunity to better manage their internal risks at an attractive cost of capital.
Existing offshore captive owners should compare the proposed UK regime with their current domicile and operating model to establish whether the UK proposals provide a more attractive option. This should include factors such as regulatory scope, capital requirements, legal structure, access to reinsurance markets and governance among other considerations.
Where relevant, firms should begin assessing the prudential implications of the PRA proposals. This includes considering the proposed captive capital requirement. Thought should be given to identifying eligible capital resources, assessing the prospect of intragroup parental support or letter of credit arrangements and early assessment of the liquidity requirements.
Firms should also consider responding to the consultation. Regulators have highlighted the already conducted industry engagement on the captive regime. Given the importance the UK Government has placed on the establishment of the regime for the UK insurance industry’s international competitiveness, firms should take the opportunity to engage and help shape it.
“This is a fundamental departure from Solvency II, reflecting the need for a different and proportionate approach for the UK Captives regime to be attractive in comparison to other available jurisdictions.”
Peter Thomas
Managing Director, PwC
Next steps
The PRA and FCA consultations close on 14 October 2026. The regulators expect implementation in mid-2027, following publication of final rules.
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