A Tailored Regime: PRA And FCA Consult On UK Insurance Captives

Key takeaways

• The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) published UK insurance captive consultations (FCA CP26/29 and PRA CP11/26) in mid-July 2026 (Consultations).
• The FCA’s conduct rules dovetail with the PRA’s prudential rules to set out Stage 1 of the UK insurance captive regime proposals.
• The proportionate regime is intended to reflect captives’ lower risk profile and encourage economic growth. At the same time, the framework is limited to single-parent (or “pure”) captives, with limits on who can be (re)insured, and the lines of business that can be written. These guardrails are intended to minimise risk to consumers and third-party insureds.
• The Consultations close on 14 October 2026, with implementation expected mid-2027.
• Stage 2 is intended to cover protected cell companies (PCCs). It will take place “at a later stage” once the necessary legislation is in place.
•  In this article we analyse the Consultations’ key proposals. Our previous updates are here, here, and here.

Background

A captive is a regulated (re)insurance company which (re)insures other entities within the same group. Captives offer many advantages, such as the ability to self-manage a portion of a group’s risk, particularly in a hard market and/or when capacity is scarce.

While UK legislation already permits captives, the same rules apply to both captive and non-captive (re)insurers. This is not attractive for potential applicants, and not internationally competitive. This also places the UK behind long-established offshore captive jurisdictions such as Bermuda and Guernsey, as well as more recently established onshore ones such as France.

A separate regime applies to captive (re)insurers at Lloyd’s. Lloyd’s captives are not covered by the Consultations.

A new regime

The regime is intended to be simple, proportionate and transparent, and to reflect captives’ lower risk profile. Captives will be category 4 firms (the lowest risk category) with bespoke rules and be dual FCA and PRA regulated.

The framework is limited to “pure” captives, which can provide cover for their parent and other group undertaking(s) plus a limited class of “material non-group undertakings”. This is a more cautious approach to underwriting external risks compared to some other jurisdictions. For example, Bermuda permits certain classes of captive to underwrite up to 20% of their business to non-affiliated parties, and the Cayman Islands permits captives to underwrite higher levels of non-affiliated business subject to stricter capital rules.

There will also be guardrails relating to lines of business. For example, compulsory lines will be limited to reinsurance only, and employee benefits to reinsurance of group entities only. Subject to the limitations, captives can insure and reinsure all other non-life corporate risks.

UK captives will be available to a variety of organisations. The Consultations confirm that financial services firms will be able to use UK captives to manage operating risks (thankfully confirming the Government’s July 2025 response, reversing its November 2024 consultation proposal). To avoid any regulatory arbitrage, captives cannot cover investment risk or commercial insurance activity.

Authorisation

The UK regulators are targeting an authorisation SLA of 4–6 weeks, with a more proportionate authorisation assessment reflecting captives’ lower regulatory risk.

This timeframe is subject to applications being “high quality and well developed”, with “no material issues arising”. In other words, early engagement with the regulators will be crucial to ensure applications are complete prior to formal submission. These criteria do not come as a surprise, being broadly in line with the current non-captive (re)insurance authorisation process.

The regulators have aimed to benchmark the UK regime internationally. As a comparison, the UK timeline is significantly faster than France (at around 90 days), broadly in line with Guernsey, but slower than Bermuda and Vermont (at around a week). The regulators will need to ensure that they have sufficient bandwidth and experience to achieve the promised timeline based on demand.

Capital and solvency

Rather than adapting Solvency UK (based on Solvency II), UK captives will have a new bespoke regime. The Captive Capital Requirement (CCR) will be the higher of 10% of net insurance liabilities or net written premiums, subject to a GBP100,000 floor.

The UK regime is genuinely competitive: France’s captives remain subject to the more complex and administratively burdensome EU Solvency II regime, although there are proposals in train to soften this for certain captives.

While there will be a range of interlocking factors for potential applicants to consider (including tax, see below), UK captives’ capital treatment could be more attractive than other jurisdictions. Captives redomiciling to the UK could potentially release capital.

Governance

Although captives often serve their group’s risk management needs, the captive’s Board must take decisions in the regulated captive’s own best interests. In other words, the captive’s regulatory interests cannot be subsumed to those of other group entities.

Captives will require a SMF1 (Chief Executive function, tailored for captives), and in some cases might need to appoint a SMF3 (executive director). At least one non-executive director (NED) is required, and certain (e.g. complex) UK captives should appoint an independent non-executive director (iNED).

Supervision

Supervision is underpinned by a strong authorisation gateway, with appropriate limitations and permissions; an expectation that captives remain within these parameters over time; and a largely reactive, portfolio-based supervisory approach.

The full risk (i.e. non-captive) supervisory framework will not apply to captives. Instead, supervision activity will be calibrated to reflect the size, complexity, and risk profile of captives relative to commercial insurers.

Stage 2

As the Government indicated in June 2026, because legislation is required, Stage 1 of the new regime will not include PCCs. The PRA’s view is that the Consultations’ framework is broadly appropriate for PCC captives, subject to modifications to reflect the PCC structure.

Segregated liability entities, such as PCCs (and more recently incorporated cell companies (ICCs) where each cellhas its own legal personality), have long been business as usual in other jurisdictions. For example, Guernsey’s and Bermuda’s PCC laws are each over 25 years old. The Starmer Government had planned to progress legislation as soon as Parliamentary time allowed, as part of a focus on financial services growth. We wait to see whether the new Burnham administration will have the same focus, and we hope that PCCs are not lost in Parliament’s long grass.

The Consultations also query whether group and association captives should be included in the UK captive regime in future.

Redomiciling

While groups will be able to establish brand new UK captives, other regimes (such as Guernsey and Bermuda) have statutory redomiciling regimes. Redomiciling is still possible absent these frameworks, but the statutory regimes make the process considerably easier. There is no mention of redomiciling in the Consultations, and we encourage the Government and regulators to consider this at Stage 2.

Tax

The Government’s insurance captives taxation policy has not changed (in short: there will be no tax incentives), and the PRA recognises that UK captive take-up will be influenced by tax. While the decision might be neutral for an entity with an existing UK tax presence, other UK captive candidates will need to weigh all of the interlocking factors, including UK tax.

If we build it, will they come?

There is fierce international competition to be a (re)insurance captive jurisdiction of choice. The regulators understand the importance of global competition, and the UK’s new regime is broadly in line with global regulatory benchmarks. In some respects (e.g. capital and solvency), the UK is more attractive than other regimes. These positives will factor into the decision-making mix, potentially with UK tax in the opposite column.

The Consultations close on 14 October 2026, with Stage 1 implementation expected in mid-2027. The PRA is hosting an insurance industry roundtable on 17 September 2026, before the Consultations close, to gather industry stakeholder views on the proposals. Separately, we await hearing Stage 2’s timeline.

Tom Gibbons, Trainee Solicitor, assisted in the preparation of this briefing.