The HM Treasury’s Autumn Statement 2023 reveals that the UK government is set to consult on the introduction of a regime for captive insurance companies by spring next year.
Presented today to Parliament by the Chancellor of the Exchequer, Jeremy Hunt, the Autumn Statement, one of the key financial events in the political calendar, sets out the government’s tax and spending plans for the year ahead.
On page 99 of the document, under a section detailing how the government plans to support the growth of the UK’s financial services sector, it states that the government “will consult on the design of a new framework for encouraging the establishment and growth of captive insurance companies in the UK.”
The consultation will launch in spring 2024 and has been welcomed by the London Market Group (LMG), which has been working with the Treasury on this over the past 12 months or so.
“The London Market Group is delighted by the announcement today by the Treasury that it will consult on the creation of a UK captive regime by spring next year, taking on board the recommendations within our Plan for the Future,” said Caroline Wagstaff, CEO of the LMG.
“As the global centre for risk transfer, London needs to be able to offer all the tools in the toolkit, so this is a great step forward.
“We look forward to working closely with the government and regulators to ensure the UK remains a highly competitive insurance centre,” she added.
A captive insurance company is a wholly owned subsidiary insurer created to provide risk mitigation services for its parent or related entities. They are typically established to meet the risk management needs of the owners, often provide tax advantages, and are formed to cover a wide range of risks.
Importantly, a captive insurer operates like a traditional insurance firm and is subject to regulatory requirements, albeit potentially less weighty than commercial insurers. Requirements include financial reporting, capital / solvency support, reserve adequacy, and an annual actuarial opinion.
With insurance costs on the rise, companies have increasingly turned to captive insurance to both lower the cost of risk and fill any gaps in their coverage.
The process to establish a captive regulatory regime will involve consultation with market participants and input from expert law firms and insurance managers.
