HM Treasury, the UK government’s department responsible for economic and financial policy, has outlined plans to advance legislation that would allow protected cell companies (PCCs) to be used within the UK’s captive insurance framework.
The proposals form part of a wider consultation considering how PCC structures could be expanded beyond their current role in risk transformation, including questions on necessary legislative changes, potential risks, and additional opportunities linked to their broader use in insurance.
HM Treasury reports that respondents generally supported removing the restriction limiting PCCs to risk transformation activities, noting that these structures are cost-effective and well-suited to captive insurance.
At the same time, HM Treasury highlights that some respondents pointed to the complexity of PCCs and stressed the importance of a cautious approach to implementation to ensure that standards of cell segregation remain robust.
HM Treasury also notes that respondents considered the existing requirement for PCC applications to include risk transformation to be unnecessary if captive insurance PCCs were permitted.
Concerns were raised about restricting a single PCC from undertaking both risk transformation and insurance activities, with some respondents observing that other jurisdictions allow these functions to be separated at cell level without increasing risk.
HM Treasury further records that respondents identified additional potential uses for PCCs beyond captive insurance, including fronting arrangements and collateralised reinsurance, which may offer greater flexibility than traditional structures. However, HM Treasury indicates that respondents did not consider these uses should take priority over captives and emphasised the need to maintain policyholder protection and appropriate regulatory oversight.
In response, HM Treasury confirms that it intends to take forward legislation enabling PCCs to effect and carry out insurance contracts, supporting their inclusion within a new UK captive insurance regime. HM Treasury states that it will seek to obtain powers through primary legislation when Parliamentary time allows, with the intention of creating a framework for two types of PCC: existing risk transformation PCCs and a new category of insurance PCCs capable of writing insurance business.
HM Treasury explains that the new captives regime is expected to launch in summer 2027. As the legislative steps required to enable PCCs to operate as insurers will involve both primary and secondary legislation, HM Treasury clarifies that PCCs will not be included at launch. HM Treasury adds that it will continue to work closely with the Prudential Regulation Authority to support their inclusion once the necessary legislative framework is in place.
Reflecting this coordination, the Prudential Regulation Authority indicates that it supports HM Treasury’s direction of travel on reforming the UK’s risk transformation regime, including changes affecting insurance special purpose vehicles and the introduction of PCC captives.
The Prudential Regulation Authority notes that it has worked in close collaboration with HM Treasury on these proposals and intends to consult on a new insurance captives regime in summer 2026, with the aim of strengthening the UK’s position as a centre for wholesale insurance and expanding access to captive insurance as a risk management tool.
The Prudential Regulation Authority explains that PCCs will not be included in that consultation or in the initial launch of the regime, expected in summer 2027, as the required legislation will not yet be in force.
It states that it will continue to work with HM Treasury and expects to consult on incorporating PCCs once the legislative framework has been established. The Prudential Regulation Authority also notes that it introduced reforms to the insurance special purpose vehicle framework in 2025, including an accelerated pathway for certain structures, and intends to consult on further changes to improve simplicity, flexibility and access, including in relation to PCC use once legislative barriers are removed.
It adds that both the planned reforms and the new captives regime are intended to support the competitiveness and growth of the UK insurance sector and the wider economy.
HM Treasury acknowledges concerns regarding whether a single PCC should be permitted to undertake both risk transformation and insurance activities. HM Treasury notes that, as a PCC is a single legal entity, combining these functions raises regulatory and tax considerations, even where activities are separated into individual cells. HM Treasury therefore states that it does not intend to legislate for dual-use PCCs at this stage.
HM Treasury also recognises the broader range of potential uses for PCCs identified during the consultation. However, HM Treasury indicates that, given their complexity and associated risks, these applications will not be prioritised immediately. Instead, HM Treasury states that legislation will be designed so as not to preclude such uses, allowing regulators to consider expanding their scope beyond captive insurance in due course.
Further details on the expected legislative changes to enhance flexibility within the UK’s risk transformation and insurance-linked securities regulatory regime can also be found here.
