On 14 July 2026, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) published proposals for the UK's first dedicated captive insurance regime. This follows HM Treasury's (HMT's) consultation on captive insurance in November 2024 and the regulators' subsequent confirmation that they would proceed with designing a new UK captive insurance regime in line with the scope HMT set out. The PRA's consultation paper (CP11/26), together with the FCA's consultation (CP26/29), outlines a new standalone framework for UK-incorporated single-parent captive insurers.

For both UK and international corporates, the proposals create an opportunity to establish and manage captives from the UK under a proportionate and dedicated regulatory framework. The consultation closes on 14 October 2026 so firms interested in the regime should engage with the proposals now. For a detailed analysis of the proposals, see our separate briefing: Consultations on a Tailored Regime for UK Captive Insurance, 20 July 2026.

What is a Captive Insurer?

Before considering the proposed regime, it is helpful to understand what a captive insurer is and why corporates use them.

A captive insurer is an insurance company established by a corporate group primarily to insure the risks of that group. Instead of purchasing all its insurance from third-party insurers, the group retains some of its risks through a dedicated licensed insurance vehicle that it owns and controls. In practice, the captive sits within the corporate group structure, allowing the group to retain risk and thus enjoy the benefits outlined below.

Captives can take several forms, but the most common is the single-parent (or "pure") captive, which insures the risks of a single corporate group. Other models include group captives (owned by multiple organisations), and association captives (operated by trade bodies).

Why do Corporates use Captives?

Captive insurance is already widely used by many of the world's largest businesses. In fact, more than 40% of FTSE 100 companies operate captive insurers, with most based in established offshore jurisdictions such as Guernsey, Bermuda, and the Cayman Islands. They are particularly deployed by global businesses with large commercial risks and strong cash generation, such as the energy, infrastructure and aviation industries.

For large organisations, the premium income, investment returns, and underwriting profits retained through a captive can be significant. Other benefits include:

• Cost efficiency: By retaining risk within the group and accessing reinsurance markets directly, businesses can reduce their dependence on commercial insurers and reduce intermediary costs. This is particularly pronounced in hard market conditions, when commercial capacity is constrained and premiums can rise sharply.
• Tailored coverage: Commercial insurance products are often designed for broad appeal and may not always reflect the specific risk profile of a particular business. A captive, however, allows coverage to be structured around the group's actual exposures and can provide protection for risks that are unavailable or prohibitively expensive in the open market.
• Enhanced risk management: Ownership of a captive gives a corporate access to its own loss data, claims history, and risk trends in a way that a conventional insurance relationship does not. This insight allows for more informed decision-making and better risk management across the group.
• Financial flexibility: Premium reserves held within a captive remain on the group's balance sheet and can be invested. This means profits from favourable underwriting years stay within the group rather than flowing to a third-party insurer. Loan-back arrangements, whereby the captive lends funds to the parent, are a key funding benefit and a known feature of captive structures; these will also be permitted under the proposed UK regime, provided the Captive Capital Requirement (CCR) is maintained.
• Strategic resilience: In sectors where insurance capacity can be unpredictable (such as construction, energy, financial institutions, and life sciences) a captive gives the corporate group a stable, controllable source of coverage that does not disappear when market conditions tighten.

The proposed UK regime is also deliberately broad and is not limited to traditional industrial businesses. Instead, it would be available to a wide range of organisations, including commercial corporates, financial services firms, public sector organisations, and certain non-commercial bodies. Financial services firms and insurers can use a UK captive too, but only to cover their own operational risks: the regime restricts captives from writing cover against investment risks, and a captive within a group that includes another insurer or reinsurer cannot reinsure that insurer's commercial underwriting business, such as risks written for third-party policyholders. In other words, a UK captive is not intended to be used as a capital management tool for a financial services parent. As a result, the potential market for UK captives is wide, and the proposals are intended to support not only large multinational groups but also a broad range of organisations looking to take greater control of their risk management and insurance arrangements.

Why Establish a Captive in the UK?

Currently, UK corporates wishing to establish a domestic captive must rely on the Solvency UK regime, or in some cases the non-Solvency UK forms available to smaller insurers, and seek authorisation as an insurance undertaking, with modifications and waivers of Solvency UK requirements given the intra-group nature of the business. This is because the existing UK regime is not designed for captives: carrying on any insurance business in the UK currently requires authorisation as a full UK insurer, with the capital and governance requirements that entails to protect third-party policyholders. That framework is a poor fit where the risks, and the policyholders, are all within the same corporate group.

To avoid a regime not intended for captive business, most corporates seeking to establish or use a captive vehicle have instead looked to established offshore captive regimes, such as those described above. However, the proposed regime would, for the first time, provide a credible domestic alternative for the UK-incorporated captive vehicle itself, whether the corporate group behind it is based in the UK or overseas.

The UK's proposition is not based on a single advantage; rather, it combines a number of features that, together, could make the UK an attractive captive domicile. In particular, the following features are attractive:

• Direct Access to the London Market: One of the UK's greatest strengths is its direct access to the London insurance market, a leading centre of specialty and complex risks. Lloyd's of London, the London Company Market, and the wider network of insurers, reinsurers, brokers, and managing agents provide a depth of expertise and capacity that few jurisdictions can match. Industry bodies have suggested that a UK captive regime could help reinforce London's position as a global centre for risk transfer, rather than solely improving access for existing offshore captives, which already transact into the London Market today. For businesses with sophisticated or unusual risk profiles, the proximity of operating a captive alongside this ecosystem can still represent a genuine operational advantage, particularly in reducing the governance and administrative burden of running an offshore structure.
• Access to Experienced Professional Advisers: The UK already has an extensive network of professionals with experience in captive insurance structures. Law firms, captive managers, actuaries, auditors, brokers, and risk consultants have been advising on offshore captives for many years. This expertise is well established and could be readily applied to a UK captive market. Organisations establishing a UK captive would therefore have access to high-quality professional support from the outset.
• A Respected Onshore Regulatory Framework: Another potential advantage is the strength and reputation of the UK's regulatory framework. The PRA is widely regarded as one of the world's leading prudential regulators, and a PRA-authorised captive may for that reason be viewed favourably by boards, investors, auditors, and other stakeholders. This may be particularly relevant for UK-listed companies. In recent years, some organisations have become increasingly focused on the governance and reporting considerations that can arise from operating structures in additional jurisdictions. A UK captive may therefore be more straightforward to explain and justify from a governance and stakeholder management perspective.
• A More Proportionate Regulatory Approach: Perhaps most importantly, the proposed regime is intended to be proportionate. The proposed Captive Capital Requirement (CCR) would be calculated as the higher of: 10% of net written premiums or 10% of net insurance liabilities, subject to a minimum requirement of £100,000. In addition, captives would be categorised as Category 4 firms, placing them in the PRA's lowest supervisory category. As a result, they would benefit from lighter regulatory requirements than mainstream insurers. For example, the regime would not require quarterly reporting, an Own Risk and Solvency Assessment (ORSA) - equivalent process, or a mandatory actuarial function. Importantly, the framework has been designed specifically for captive business; rather than adapting requirements intended for commercial insurers, the PRA has calibrated the regime to reflect the lower-risk and more specialised nature of captive insurance.
• Faster Authorisation: The proposed authorisation process is also intended to be relatively quick. The PRA has indicated that it aims to authorise captives within four to six weeks of receiving a complete application. This is broadly comparable to the authorisation timelines quoted by established captive domiciles such as Guernsey and Bermuda. Application fees and ongoing annual fees are also expected to be relatively modest. Consequently, organisations that have found some offshore authorisation processes lengthy or uncertain may view the UK approach favourably.

Taken individually, none of these features is unique. Bermuda offers regulatory flexibility and a mature captive market; Guernsey provides proximity and familiarity for many UK businesses; and Ireland offers access to the EU single market. However, the UK proposition is different because it combines several advantages in a single jurisdiction. A corporate could operate a captive from its home jurisdiction, access the world's leading specialty insurance market, benefit from a respected regulatory framework, and draw on one of the deepest pools of professional expertise available anywhere. For many organisations that have historically accepted the inconvenience of an offshore captive as the price of obtaining its benefits, that combination is compelling. Indeed, for some corporates, the proposed regime could finally make a UK domicile the preferred option.

Life Insurance and Pensions

The proposed captive regime could be relevant for corporates looking to manage employee benefit and pension risks. However, the position is more nuanced than for traditional non-life insurance risks. In particular, companies with significant group life insurance programmes or defined benefit pension obligations should look carefully at the detail of the proposals.

The PRA has taken a cautious approach to life insurance under the proposed regime. As a starting point, standalone life insurance business is outside the scope of the captive framework. This reflects a deliberate policy decision by the PRA to focus the regime primarily on non-life risks and certain employee benefit risks, rather than long-term individual life insurance business.

At first glance, this may appear restrictive. However, the position is not quite as narrow as it first seems. The proposed regime would allow captives to participate in group life, group income protection, and similar employee benefit arrangements but only on a reinsurance basis and only in relation to their own employees. In practice, this means a commercial insurer must continue to sit between the captive and the employees. The insurer issues the policy directly to employees, while the captive reinsures some or all of the underlying risk. The result is that corporates cannot use a UK captive to write employee life insurance directly. Nevertheless, they can still retain and manage a significant proportion of the underlying risk through a reinsurance structure.

Although this approach limits some of the potential cost savings and operational control available through a direct-writing captive, it does not eliminate the commercial benefits. For larger employers with substantial and predictable employee populations, reinsurance through a captive can still reduce insurance costs, improve access to claims data, and support more sophisticated workforce risk management. Over time, this can lead to a better understanding of employee health, mortality, and morbidity trends, helping organisations make more informed decisions about both risk financing and employee benefits.

Pensions and Longevity Risk

The position for pension risks is less clear. The consultation papers say relatively little about longevity risk arrangements, despite their growing importance for corporates with defined benefit pension schemes. Longevity risk arises when pension scheme members live longer than expected, increasing the cost of meeting pension obligations. Traditionally, many schemes transfer this risk to insurers or reinsurers through buy-ins, buy-outs, or longevity swaps. However, some groups have used captive structures to retain and manage part of this risk internally rather than transferring it entirely to the external market. The commercial logic is straightforward: a captive may allow a corporate group to manage longevity risk more flexibly and potentially at a lower long-term cost than a full transfer to a third party.

In principle, the proposed UK regime could support these types of arrangements. A captive could potentially reinsure longevity risk from a defined benefit pension scheme, providing a domestic vehicle through which the group manages its exposure before accessing the wider reinsurance market. However, there is an important limitation: the proposed regime excludes investment risks from the scope of permitted captive business. This creates uncertainty because some longevity structures combine insurance and investment elements in a way that can be difficult to separate. As a result, whether a particular longevity arrangement falls within the scope of the regime may depend on how it is structured and how the underlying risks are characterised. The boundary between insurance risk and investment risk is not always clear in the pensions context. Consequently, corporates considering the use of a captive for longevity risk management will need to examine proposed structures carefully before proceeding.

Areas for Clarification

Longevity captives are one of the areas where additional regulatory guidance is welcome. The consultation papers do not address longevity captives in any significant detail. Given the size of UK defined benefit pension liabilities, this is potentially a significant omission. Indeed, for some large corporates, the ability to manage longevity risk through a UK captive could ultimately prove more valuable than many of the regime's traditional non-life applications.

Respondents to the consultation may therefore wish to seek greater clarity from the PRA on how longevity risk arrangements will be treated in practice. In particular, the market would benefit from clearer guidance on where the PRA believes the boundary lies between permissible insurance risk and excluded investment risk. If the final regime provides a clear and workable framework for longevity risk structures, it could become one of the most commercially important aspects of the UK's captive regime for large corporate groups. However, until greater certainty is provided, this remains an area that will require careful analysis on a case-by-case basis.

Several important issues remain unresolved, including the position of group captives, the mechanism for redomiciling existing offshore captives, and the extent to which life and longevity risks can be accommodated within the framework. The consultation process will therefore play an important role in determining whether the UK can compete effectively with established captive domiciles such as Bermuda and Guernsey. Captives can also take other legal forms in established offshore regimes, including segregated accounts or Protected Cell Companies (PCCs), which allow multiple participants to operate through legally segregated cells within the same licensed entity. The UK's proposed regime focuses initially on single-parent captives structured as limited companies only as the introduction of PCC's to the captive regime would require legislative changes under the remit of HMT. HMT has, however, indicated that the legislative changes required for PCCs to operate as captive insurers are progressing.

Another area where legislative changes would be required (and which are outside the scope of the PRA and FCA consultations) is the introduction of a captive redomiciliation regime. This is a feature of other captive jurisdictions and would allow frictionless transfer of existing captive business from offshore jurisdictions into the UK. Similarly to PCC's, HMT has indicated it is looking at the introduction of a captive domiciliation regime and this has the potential to greatly facilitate the inflow of business to the UK.

Lastly, tax which is not addressed in detail in the consultation. The PRA has acknowledged that take-up of the regime will be influenced by how tax rules apply in practice but as tax policy sits outside its remit and is a matter for HMT and HMRC. Corporates evaluating a UK captive should therefore take separate tax advice on both UK and any relevant cross-border tax treatment alongside their review of the regulatory proposals.

Next Steps

The consultation closes on 14 October 2026, giving corporates a relatively short window to influence the shape of the final regime. This is particularly important for organisations that already operate offshore captives or have previously considered establishing a captive but were discouraged by the lack of a UK domicile option. The consultation provides a valuable opportunity to help shape a framework that could become a significant part of the UK's insurance market.

The success of the regime will ultimately depend on how it operates in practice. Nevertheless, the direction of travel is clear. For organisations that have historically managed captives from Bermuda, Guernsey, or the Cayman Islands (and for international groups that already rely heavily on the London Market) the proposed regime offers something that has not previously existed: a credible and commercially attractive UK-based alternative for captive.