The group life and employee benefits sector has been included in HM Treasury’s (HMT) plans for the new UK captive insurance regime, having been excluded from the original proposals.
The first consultation on the UK captive insurance framework was published in November and proposed blocking captives from covering all types of life insurance.
However, following strong responses from the industry, HMT has agreed to allow a carve out for group life and other limited types of life insurance product to be covered by a captive insurer.
Publishing its response to the consultation, Treasury noted several stakeholders raised the issue of employee benefits and group life insurance products.
“These respondents noted that these were popular products for businesses to place into captive insurance vehicles globally,” it said.
“It was noted that these products do not typically represent the same long-term risk as other life insurance products.”
In response, the government acknowledged that “certain life insurance products, such as group life fixed-term policies, may not have the same long-term liabilities (and associated risks) as other life insurance products”, and agreed there was a case for permitting these to be written by captives.
“In order to allow specific, limited types of life insurance product to be covered by a captive insurer, the regulators will consider an appropriate scope for those captives – including particular risks that should be included in a revised regulatory framework,” HMT added.
Summer 2026 consultation
Plans for the UK captive insurance framework were published today ahead of chancellor Rachel Reeves’ Mansion House speech tonight.
The government maintains its original plan that the UK’s framework for captive insurance companies should initially differentiate between two types of captive, direct-writing and reinsurance.
The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) will design and implement the detailed rules and processes for the application of the framework.
The PRA intends to consult on new rules in summer 2026, with a view to implementing the new framework in mid-2027, while the FCA’s proposals will be developed and consulted on in parallel.
The government also agreed with feedback from the majority of insurance sector respondents, who called for a broader scope to allow a wider range of firms to establish captives and to permit a broader set of risks to be insured through them.
Detailed rules will be considered and established by the regulators but the government anticipated that these would include proportionately lower capital and reporting requirements and facilitating faster authorisations for captive insurers.
‘Bespoke captive insurance framework’
“Having carefully considered all the feedback received, the government considers that the introduction of a new UK captive insurance framework will enhance the international competitiveness of the UK insurance sector, support economic growth, and provide businesses with a greater range of risk management options,” it said.
“The government is committed to establishing a genuinely competitive, bespoke captive insurance framework in the UK, and to do so in a way that balances speed of implementation with quality.
“To achieve this, the government will support the PRA and FCA in consulting on and introducing a comprehensive framework tailored specifically for captive insurers.
“The PRA and FCA will design this framework in line with their statutory objectives, including giving due consideration to their secondary growth and competitiveness objectives.”
Stakeholder subject expert groups
In a joint statement the FCA and PRA welcomed the plans and confirmed consultations would be coming next summer.
The regulators will work with HMT and a wide range of stakeholders, including users of captives as well as financial services firms, with subject expert groups of these stakeholders being founded “as soon as practicable”, to gather feedback for policy development and technical matters.
“Our consultations will be based on the scope outlined in HMT’s consultation response,” they said.
“We particularly welcome HMT’s commitment to introduce legislation to enable captives to be established within protected cell companies (PCCs).
“Use of PCCs can widen access to the benefits of captives by providing a more affordable route for smaller businesses. It can also serve as a pilot option for larger corporates taking their first steps towards establishing standalone captives.
“This is an important step in the development of a competitive UK captives sector,” they added.
