On 15 July 2025, His Majesty’s Treasury (HMT), alongside the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), announced plans to establish a bespoke regulatory framework for captive insurance, aiming to position the UK as a competitive global hub.[1]
Captive insurance, a self-insurance mechanism where a corporate group creates a wholly owned subsidiary to insure its risks, offers multinationals enhanced control over coverage, pricing and claims, often with tax benefits and cost efficiencies.
The UK’s current regime, tailored for commercial insurers, is ill-suited for captives due to its high costs, rigidity and lack of tailored provisions. For example, capital requirements, aligned with Solvency II standards (the EU’s regulatory framework for insurance and reinsurance companies) for large insurers, are disproportionately high for captives, which typically insure low-risk, group-specific activities.[2]
HMT’s November 2024 consultation and July 2025 response emphasised the need for a “genuinely competitive, bespoke captive insurance framework” [3] with a broader scope.
With consultations planned for summer 2026 and implementation targeted for mid-2027, the UK must consider global benchmarks in captive insurance like Bermuda, Guernsey, and the Isle of Man to design and implement an ambitious framework that leverages London’s insurance market while addressing industry demands for greater flexibility and proportionality.
Learning from global leaders
To build an ambitious and competitive framework, the UK must look to the structures implemented by leading captive domiciles.
Bermuda, Guernsey, and the Isle of Man dominate the global market, offering tailored environments which balance flexibility, proportionality, and oversight. Bermuda, one of the world’s leading captive hubs with over 600 captives in 2024,[4] uses a class-based capital system that lowers requirements for captives and imposes zero corporation tax. Importantly while the jurisdiction enjoys Solvency II equivalence for its commercial insurers, the captive classes are not impacted. This enables captives to underwrite diverse risks, including third-party business, allowing efficient risk pooling and coverage for related entities.
Guernsey, Europe’s largest captive domicile with over 200 captives[5], pioneered the Protected Cell Company (PCC) model, which enabled smaller firms to pool risks cost-effectively within a single legal structure. Its risk-based regulation and competitive tax regime support direct-writing captives that underwrite risks in the UK and beyond.
The Isle of Man emphasises proportionality, with variable capital requirements tied to business plans and support for PCCs, which are further bolstered by a favourable tax environment.
Ireland, Malta, and Vermont offer further insights. Ireland’s Solvency II-compliant framework, with a 12.5% corporation tax, benefits from EU market access. Malta’s 35% standard corporation tax is offset by refunds, and its PCC support enhances EU competitiveness.
Vermont, the leading US captive jurisdiction, offers a business-friendly, risk-based approach and exempts premiums from corporation income tax, making it a model for flexibility.
These jurisdictions share flexible capital requirements, proportional regulation, competitive tax structures, and innovative frameworks. In our view, the UK must adopt these elements whilst leveraging London’s status as Europe’s largest insurance market.
The UK’s opportunity: key pillars of an ambitious framework
HMT’s July 2025 consultation response emphasises the need for a broader scope, which would allow for a wider range of firms and risks, proportionate capital and reporting requirements, faster authorizations, and PCC support.[6]
In our view, an ambitious UK framework should rest on four pillars: (1) flexible underwriting, (2) proportionate regulation, (3) competitive taxation, and (4) innovative structures.
1. Flexible underwriting: direct writing and expanded risks
The UK must decide whether captives can write direct insurance or be limited to reinsurance. Direct-writing captives, which underwrite risks directly for the parent or related entities, reduce reliance on costly fronting arrangements.
Bermuda and Guernsey permit direct writing, enhancing their appeal. HMT’s response distinguishes between direct writing and reinsurance captives, but excludes direct writing of compulsory lines (e.g., motor third-party liability). An ambitious framework would fully embrace direct writing captives for non-compulsory lines, thereby minimising fronting costs for multinationals with complex risks.
HMT also stated its support for broader risk eligibility, which could include third-party risks like insuring franchises or supply chains, and allowing financial services firms to establish captives for limited purposes (e.g., first-party risks like property damage).
Bermuda’s model permits third-party underwriting, fostering innovation. The UK should allow limited third-party risks, with regulatory safeguards, to attract diverse captives while aligning with industry demands for flexibility.
2. Proportionate regulation: streamlining compliance
The UK’s current framework imposes high capital and compliance costs, deterring captives. HMT’s response advocates proportionately lower capital and reporting requirements and faster authorisations.
Bermuda’s class-based system and Guernsey’s risk-based supervision tailor requirements to captives’ risk profiles. The UK should adopt a tiered, risk-based approach, with lower capital for captives insuring low-risk group activities and higher thresholds for third-party or complex risks.
The Isle of Man’s efficient licensing and Guernsey’s streamlined approvals set a high standard. The PRA/FCA’s planned 2026 consultations should prioritise a fast-track authorisation process for straightforward captives, maintaining Solvency II equivalence for EU market access. This aligns with HMT’s ‘no new legislation’ stance, ensuring swift implementation by mid-2027.
3. Competitive taxation: incentivising domicile choice
Taxation is often a factor in domicile decisions and HMT’s call for a “genuinely competitive”[7] framework suggests tax reform openness.
Bermuda’s zero corporation tax, Vermont’s premium tax exemption, and Guernsey’s competitive regime attract captives. The UK’s 25% corporation tax (2025) is less competitive than Ireland’s 12.5%. To compete, the UK could exempt captive premiums from corporate income tax or offer reserve deductions, mirroring Vermont. Malta’s refundable 35% standard tax model also shows that flexibility enhances competitiveness.
Targeted relief for captives insuring group risks could make the UK a viable alternative to offshore hubs, leveraging proximity to the London insurance market.
4. Innovative structures: prioritising PCCs
HMT’s response and concurrent July 2025 Insurance Linked Securities and PCC consultation emphasise PCCs, which allow multiple entities to pool risks within a ring-fenced legal structure.
Guernsey’s PCC model lowers entry barriers for smaller firms.[8] The UK’s framework should streamline PCC setup and governance, as proposed in the July 2025 consultation, despite requiring legislative changes. This aligns with industry feedback for broader firm eligibility, including smaller companies.
Beyond PCCs, the UK could explore Incorporated Cell Companies (ICCs) for risks like cyber, D&O or climate events, as seen in Bermuda. Such innovations would differentiate the UK and attract forward-thinking multinationals.
Challenges and considerations
Balancing competitiveness with stability is critical. Overly lax regulation risks undermining the UK’s financial reputation, while excessive caution could continue to drive captives to Bermuda, Guernsey or elsewhere.
HMT’s response and the PRA/FCA’s statement emphasise pace, but the 2026–2027 timeline requires careful calibration to avoid rushed compromises.
Excluding compulsory lines for direct writing is prudent, but restricting third-party risks too tightly may limit appeal.
Conclusion: seizing the opportunity
An ambitious UK captive framework must combine flexible underwriting, proportionate regulation, competitive taxation, and innovative structures to rival its global competitors. By permitting direct writing captives for non-compulsory lines, allowing limited third-party risks, adopting risk-based regulation, offering tax incentives, and prioritising PCCs, the UK can attract high-value captive business.
A bold approach could redefine the UK’s role in global captive insurance, but timidity risks losing ground to established domiciles. Leveraging London’s insurance market, the FCA and PRA have a unique opportunity to create a bespoke regime by mid-2027, which balances competitiveness with stability.
[1] https://www.gov.uk/government/consultations/captive-insurance
[2] https://www.bankofengland.co.uk/prudential-regulation/publication/2025/july/captive-insurance-statement
[3] https://www.gov.uk/government/consultations/captive-insurance
[4] https://www.lexology.com/library/detail.aspx?g=006abdc4-b470-45ce-bd50-0ed5ed50dd68
[5] https://www.guernseyfinance.com/industry-resources/news/2024/guernsey-keeps-top-spot-as-europe-s-largest-captive-domicile/#:~:text=For%20the%20second%20year%20in,year%20in%20collaboration%20with%20AIRMIC.”
[6] https://www.gov.uk/government/consultations/captive-insurance
[7] https://www.gov.uk/government/consultations/captive-insurance
[8]https://assets.publishing.service.gov.uk/media/687637f339d0452326e28e9d/Changes_to_the_risk_transformation_regulations.pdf