The UK insurance regulator’s recent consultation paper on a bespoke regulatory framework for single-parent insurance captives is expected to create a captive regime that compares well with other established captive domiciles, according to AM Best.
The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have released a consultation paper on a bespoke regulatory framework for captive insurers in the UK, nearly a year after the plans were first signalled.
The consultation will remain open until October 2026, with the regulators looking to implement legislation as soon as July 2027.
The current consultation covers single-parent captives, with plans to extend to other structures such as group captives and Protected Cell Companies (PCCs) in due course.
The regime aims to enhance the UK’s insurance market proposition by creating an internationally competitive market for captives while maintaining appropriate safeguards through PRA and FCA oversight.
AM Best said UK-domiciled corporations are likely to consider establishing captives in the UK, given the flexibility around capital and operational structures, alongside a lighter reporting burden and a shorter processing timeframe.
The proposed regime features the exemption from UK Solvency II requirements, with proportionately lower capital and reporting requirements instead.
AM Best expects the flexible capital requirement framework to give the UK a competitive proposition. While many captive regimes apply proportionality principles, the admissibility of letters of credit varies, with limits applied in certain jurisdictions. The UK regime’s proposals are not expected to be significantly more capital efficient than those of other regimes, but the UK may be considered a preferred captive domicile for UK companies.
Regarding operational efficiencies, the UK proposes a single type of captive, which can write insurance business on both a direct and reinsurance basis. In addition, UK captives will be able to write non-life business alongside certain types of employee benefits business. Since the latter can only be written on a reinsurance basis, such a captive would not be classified as a composite.
AM Best noted that the ability to write both direct and reinsurance business will afford greater flexibility to UK captives, as some domiciles require separate licences for these businesses.
Patrick McCrystal, financial analyst and one of the authors of the commentary, said, “For U.K. corporates, the proposed captive regime could mean keeping risk management and governance within the country and avoiding offshore governance complexities. Nonetheless, for parent companies, taxation is expected to be a key consideration. U.K. captives are expected to be subject to a standard U.K. corporate tax rate whilst some of the other established domiciles have lower tax rates.”
