The FCA and PRA have published parallel consultations on a new tailored UK regime for captive insurance. The PRA consultation covers the prudential framework, while the FCA consultation covers conduct matters. Together, the proposals are intended to create a proportionate UK regime for single-parent captives, also referred to as pure captives.
A captive is an insurance or reinsurance undertaking created and owned by a commercial, industrial, financial or public organisation to insure or reinsure risks within its own group or closely connected parties. The PRA notes that captives can help parent organisations manage insurance costs, access reinsurance markets directly, strengthen risk management and obtain cover for risks that are excluded or expensive in the commercial market.
The proposals are significant because the UK does not currently have a tailored captive insurance regime, which has contributed to many UK corporates establishing captives overseas. The proposed UK regime is intended to support competitiveness, bring more risk financing activity into the UK, and expand the range of insurance services available through the London Market ecosystem.
Responses are requested by 14 October 2026, with implementation expected in mid-2027.
Key Highlights:
A New Regime for Single-Parent Captives
The initial regime is aimed at single-parent captives, which would generally insure or reinsure risks of their group entities and connected parties. The PRA considers these structures lower risk because the captive and group policyholder will usually have aligned interests, less information asymmetry and limited wider financial stability impact if the captive fails.
The PRA intends to consider other structures, including protected cell companies, at a later stage once the necessary legislative framework is in place.
Proportionate Capital and Reporting Requirements
The PRA is proposing a regime separate from Solvency UK, with proportionately lower capital and reporting requirements, a flexible capital resources framework and tailored requirements reflecting the lower risk profile of captives.
The proposed Captive Capital Requirement would be the higher of:
- 10% of net insurance liabilities; or
- 10% of net premiums;
subject to a minimum of £100,000. The £100,000 capital floor would need to be met by paid-in capital, but letters of credit and parental or group support agreements could be used to meet the remaining requirement, subject to relevant criteria.
Faster Authorisation Route
The PRA proposes a 4–6-week authorisation decision timeline, subject to receiving a complete application.
This is positive – but firms should not underestimate the evidence that will be required. A faster process will depend on strong entry standards, complete documentation and a captive that is ready to operate from day one.
Restrictions on What Captives Can Write
The proposed regime would allow UK captives to write certain business on a direct or reinsurance basis, but important restrictions would apply. The PRA’s scope overview indicates that compulsory lines and employee benefits would be permitted on a reinsurance basis only, while other corporate risks could generally be written on a direct or reinsurance basis.
The PRA is also proposing to allow captives to insure certain connected non-group entities, such as significant suppliers, franchisees, minority stake entities and owner-controlled insurance programmes, subject to safeguards.
Proportionate Conduct Framework
The FCA is proposing a proportionate conduct framework reflecting the intended scope of the regime. The FCA proposes that requirements such as the Consumer Duty, ICOBS, PROD 4, CASS, DISP, COMP and regular SUP 16 reporting would not apply to captive insurers, given the proposed restrictions preventing direct exposure to consumers, FOS-eligible SMEs and policy stakeholders.
This does not mean captives will be unregulated. Captives would still need to meet threshold conditions, maintain appropriate systems and controls, manage outsourcing effectively, comply with relevant SYSC provisions and notify the FCA of material events under SUP 15.
Governance, SMCR and Conflicts Will Be Central
The PRA proposes that captive Boards should have an SMF1 and a mandatory non-executive director. Captives would also need to assess whether an independent non-executive director is appropriate based on the nature, scale and complexity of their risks.
This is important because captives sit inside corporate groups. The parent may want lower premiums, broader cover, capital efficiency or investment flexibility, but the captive remains a regulated insurer. It must be governed as an insurance business, with appropriate underwriting, reserving, capital, risk management and conflicts oversight.
Captive Managers and Outsourcing Need Proper Oversight
Captive managers are likely to play a central role in the proposed regime. Captive management is not a specific regulated activity under the Regulated Activities Order, but captive managers may still need authorisation where they carry on regulated activities. Where captive management is outsourced, the captive remains responsible and the Board must maintain effective oversight.
Firms should assume captive management arrangements will require robust outsourcing governance, clear service standards, records, regulatory cooperation provisions, conflicts controls and Board-level oversight.
What Firms Should Do Now
Assess Whether a Captive Supports the Group Risk Strategy
Corporate groups should consider whether a captive could help manage risks that are expensive, excluded, volatile or poorly served by the commercial market. The key question is not simply whether a captive could reduce premium spend, but whether it would improve risk financing, data, claims insight and risk ownership.
Review Existing Captive Arrangements
Groups with captives in jurisdictions such as Guernsey, the Isle of Man, Bermuda, Ireland, Malta, Luxembourg or elsewhere should assess whether a UK captive option could be commercially, operationally and governance attractive.
Consider Direct Versus Fronted Structures
Firms should identify which lines could be written directly and which would need a fronting or reinsurance structure. This is particularly relevant for compulsory lines, employee benefits and arrangements involving individual beneficiaries.
Model Capital, Tax and Cost Implications
A UK captive will not automatically be the best domicile for every group. Firms should compare the proposed UK capital, reporting and governance requirements against existing domicile costs, tax position, transfer pricing, Pillar Two, insurance premium tax, administration and service provider arrangements.
Prepare for Authorisation Early
The proposed 4–6-week decision timeline is only realistic where the application is complete and well evidenced. Firms should prepare governance documents, business plans, risk appetite, underwriting strategy, reserving approach, capital resources, outsourcing arrangements and Board composition early.
Design Governance and Conflicts Controls
Captives should have clear governance arrangements from the outset, including Board composition, SMF responsibilities, conflicts management, underwriting authority, reserving governance, investment strategy and reporting.
Review Captive Manager Arrangements
Where captive management is outsourced, firms should ensure the agreement supports regulatory expectations. This should include reporting, access to records, conflicts, whistleblowing, regulatory cooperation, business continuity and exit arrangements.
Assess Market Impact
Insurers, reinsurers, brokers and London Market firms should assess how a UK captive regime could affect corporate buying behaviour. Captives may reduce some traditional premium flow, but they may also create demand for fronting, reinsurance, claims services, risk engineering, captive management, actuarial, legal and advisory support.
Consider Responding to the Consultation
Firms affected by the proposals should consider responding before 14 October 2026, particularly on scope, authorisation, capital, governance, outsourcing, reporting, conduct requirements, protected cell companies and potential future expansion of the regime.
Conclusion
The proposed UK captive regime is a significant development for the insurance market. It reflects the wider regulatory direction – more proportionate regulation, stronger competitiveness objectives and a greater willingness to tailor requirements where the risk profile supports it.
For corporates, the regime could create a new UK-based option for retaining and financing risk. For insurers, reinsurers, brokers, captive managers and London Market firms, it could create new advisory, fronting, reinsurance, claims and risk management opportunities.
However, captives should not be treated as a light-touch workaround. A captive remains a regulated insurer. The commercial rationale may sit with the parent group, but the governance, capital, underwriting, reserving and conflicts decisions must be capable of standing up as insurance decisions.
We support insurers, intermediaries, captive managers and corporate groups in assessing and implementing regulatory change. In relation to the proposed UK captive regime, we can assist by:
- assessing the impact of the FCA and PRA proposals;
- reviewing whether a captive could support group risk strategy;
- comparing UK captive requirements against existing captive domiciles;
- supporting captive feasibility and regulatory gap analysis;
- preparing authorisation planning and application materials;
- designing governance, SMCR and Board arrangements;
- reviewing conflicts of interest frameworks;
- supporting outsourcing and captive manager governance;
- advising on conduct, systems and controls and regulatory notification requirements;
- preparing consultation responses;
- supporting insurers, reinsurers and brokers with market impact assessments.
Our team can help firms assess whether the proposed UK captive regime creates a genuine opportunity, while ensuring governance, accountability and regulatory expectations are properly managed.