On 14 July, the PRA and FCA published consultation papers  PRA CP11/26 – A tailored regime for captive insurance  (PRA CP11/26) and CP26/29: A tailored regime for captive insurance (FCA CP26/29) setting out a proposed regulatory framework for captive insurance aimed at establishing the UK as “a centre for the fast-growing captive insurance market”.

The market has stressed the need for regulatory flexibility, responsiveness and speed in order for a UK captive framework to succeed. The regulators have sought to address this, emphasising that the key aims of the proposed regime are to be tailored, pragmatic and proportionate. These aims consistently underpin the proposals for the new framework, which will operate separately to the wider Solvency UK framework, and encompass:

  • proportionately lower capital and reporting requirements;
  • a flexible capital resources framework;
  • faster authorisation processes; and
  • tailoring of other regulatory requirements to reflect the typically lower risks of captives.

The consultations are open until 14 October 2026, with the new regime set to launch in summer 2027.

Background and scope of the proposals

Following an HM Treasury consultation in November 2024, plans for a UK captive regime were first announced in the Chancellor’s Mansion House speech in July 2025, followed by a joint commitment by the PRA and FCA to introduce a regime aligned to the scope set out by HM Treasury and its inclusion as a priority action to support growth and innovation set out in the FCA’s Regulatory Priorities: Insurance report in February 2026. The need for a proportionate and flexible regime was also highlighted by Shoib Khan in his speech on16 June 2026.

Currently, the scope of the proposed regime is for “single-parent” or “pure” captives only (that is, captives that are only permitted to insure or reinsure risks of their group entities and parties connected to the group) which form stage 1 of the PRA’s consultation process. This reflects the PRA’s view that these captive arrangements present a lower risk to its primary statutory objectives due to the alignment of interests between policyholder and captive. The assessment of this type of arrangement as lower risk underpins the “lighter touch” requirements in the proposed regime.

Further consultation on the incorporation of protected cell companies (PCCs), expected to play a substantial role in widening access to captive insurance, will follow as stage 2 once there is legislation in place to allow PCCs to be established as insurers (currently, PCCs are only available for insurance risk transfer through insurance special purpose vehicles, which are subject to fully funded requirements under the Solvency UK framework). The PRA has indicated that it anticipates that the proposed regime for single parent captives would be broadly appropriate for PCC captives with modifications where necessary to reflect the PCC structure.

The PRA has also sought views on group and association captives (insurance undertakings owned and controlled by multiple policyholders, rather than a single corporate group) to inform potential future policy development. 

Scope of the proposed UK captive regime

The PRA and FCA have proposed a new standalone definition of “UK Captive Insurer” (a UK captive)which will form a distinct category of insurer, and is defined as “a fully owned subsidiary incorporated in the UK, the purpose of which is to only insure risks of its group entities and material non-group undertakings which are connected to the group”.

Following industry input, the regulators have diverged from HMT’s consultation in proposing a single type of captive, which can write insurance business on both a direct and reinsurance basis, subject to the lines of business limitations set out below.

A UK captive would not be a composite under the proposed regime because employee benefits business would only be permitted to be reinsured through the captive and the writing of life insurance business outside these benefits is not permitted.

The PRA has clarified that PRA CP11/26 does not propose any changes:

  • for third-country branches of overseas captives, which will continue to be covered under the PRA’s policy framework for insurance third-country branches; or
  • for the intragroup reinsurance vehicles that are used by many Solvency UK groups.

Who can be insured: under the PRA’s proposals, a UK captive would be able to insure companies within its group and the four categories of non-group companies: significant suppliers (direct only, sub-contractors are excluded from the definition), franchisees, minority stakes (of at least 5%) and owner-controlled insurance programmes (OCIPs) considered further below.

It proposes that (with some safeguards), captive arrangements can be used by commercial, financial and public organisations, including financial services firms. The PRA proposes that UK captives of groups with other (re)insurers would not be permitted to reinsure risks arising from the other (re)insurers’ commercial insurance activity, such as risks underwritten for third-party policyholders, in line with its proposal that financial services firms should only be able to insure operational risks through the regime.

What can be insured: broadly, compulsory lines, risks for or covering consumers or SMEs that are eligible to refer complaints to the FOS, employee benefits (offered on a “group policy” basis and excluding pensions) and multi-occupancy building insurance can only be reinsured through a captive, whilst other corporate risks (with some exceptions) can be the subject of direct insurance and reinsurance. There are some exceptions to this, namely:

  • Employee benefits for non-group companies cannot be insured or reinsured through the captive;
  • Lines where the company is the policyholder but there are third party named beneficiaries (such as D&O insurance Side A cover) can only be reinsured;
  • Protection against investment risks will not be permitted to be (re)insured through a captive; and
  • Life insurance beyond certain defined employee benefits cannot be (re)insured.

Material non-group undertakings

The PRA proposes to permit UK captives to insure non-group undertakings with “material contractual and financial relationships” with the UK captive’s group, where the insured exposure arises directly from those contractual arrangements (recognising many overseas regimes allow this). The PRA has acknowledged that “material contractual and financial relationships” could be broadly interpreted and has emphasised that the captive must determine appropriateness itself following the approach set out in the draft Supervisory Statement accompanying the consultation (the draft SS).

In order to limit potential risks, the framework is structured around the four most common permitted structures set out above, supported by the following safeguards:

  • 10% volume cap (excluding OCIPs): temporary excess requests may be considered via the statutory waivers process. OCIPs are excluded from the cap given their usually strong alignment of interests.
  • reinsurance only for material non-group undertakings with turnover under £1 million (and therefore eligible for FSCS protection); those above £1 million may be insured directly or via reinsurance.
  • FOS eligibility: as set out in FCA CP26/29, UK captives may insure material non-group undertakings eligible for the FOS on a reinsurance basis only.

The PRA has indicated that it is keeping an open mind on potential other use cases, and that it is open to discussing potential other permitted structures on a case-by-case basis as part of authorisation and/or supervision. It also seeks views on reinsuring related third-party risks (e.g. customer risks via fronting arrangements) and whether the proposed regime suits such arrangements.

Where insurance entities use captives, the PRA proposes amending the Group Supervision Part of the PRA Rulebook so that captives are fully consolidated within groups containing at least one Solvency UK insurer alongside a UK captive. This proposal:

  • maintains the core principles of group supervision under Solvency UK, preserving a single economic view of the group; and
  • introduces a proportionate approach for groups containing captives but no Solvency UK insurers, limiting group supervision to monitoring of intra-group transactions and exposures via regular reporting templates.

Type of company

The consultation proposes that UK captives would be established as companies limited by shares. Companies limited by guarantee (which the PRA regards as more suited to group and association captives) would not be permitted.

A fast and flexible authorisation regime

Responding to feedback through the engagement process, the PRA and FCA have proposed a 4-6 week timetable for authorisation (subject to receiving a complete application and the absence of material issues) excluding preliminary/pre-application discussions. This is a significantly shorter period than the authorisation process for commercial insurers, and both consultations emphasise the need for applicants to be properly prepared and submit complete and credible plans evidencing that the PRA and FCA’s Threshold Conditions have been met.

Key aspects of the proposed regime are:

  • The authorisation process: UK captives will be dual regulated with the PRA leading the authorisation process. Under the proposals, the process encompasses (i) preliminary (initial enquiry) and (ii) pre-application engagement – these are voluntary, confidential process stages aimed at identifying any issues to ease the authorisation process but the PRA has emphasised their benefit in enabling a swift authorisation process (iii) submission of a formal application including documentation and plan (iv) review and due diligence (governance, capital, risk); (v) decision (approval conditions or queries) and (vi) post approval set up (operational readiness and reporting).
  • Core documentation and evidence applicants would be expected to submit: a streamlined application pack and bespoke form are proposed with the documentation requirements encompassing business model and risk profile, governance and ownership, and risk and financial information.
  • Regulated activities for which UK captives may apply for permission: the regulated activities for which authorisation is sought must be set out in the application form, limited to only those permissions necessary for the proposed business and consistent with the UK captive’s business model, lines of business and operating arrangements. The PRA would assess the permissions sought alongside the proposed limitations and could restrict or refine them where necessary to ensure they remain within the scope of the captive regime.
  • Limitations that would apply to UK captives: an applicant will be asked to apply for limitations under section 55F(3) of FSMA restricting its regulated activities in the manner set out in the Captive Insurers – General Provisions Part of the PRA Rulebook, reflecting the business profile of a UK captive.  
  • A proportionate approach to assessing whether applications meet the Threshold Conditions (including effective supervision, appropriate resources (financial and non-financial) suitability and business model) in FSMA, with more focussed evidence requirements centred on whether the applicant has a business model appropriate for a UK captive, and, where appropriate, reliance on attestations.  

Applicants would need to demonstrate the ability to comply with the governance and reporting requirements summarised below.

Application of the FCA rules

As set out in FCA 26/29, the FCA’s approach to the regulation of UK captives is focussed on a recognition of the risks specific to captive insurers. Therefore, the FCA proposes:

  • General application of the high-level standards that apply to conventional insurers with some exclusions and modifications. The majority of the FCAs Principles for Business will apply, those only applicable to retail business (such as the Consumer Duty) will not, nor will the PROD and ICOBS rules or the full reporting requirements in SUP16. The full list of the FCA’s Handbook rules and their proposed application to captives is set out at paragraph 3.4 of FCA 26/29. 
  • Application of some rules in certain situations only, for example if they are triggered by specific events or risks.
  • Amendments to the rules that remain switched on reflecting, where necessary, the unique business model of captive insurers.

A reactive approach to supervision.

The PRA proposes that the supervisory regime will focus on maintaining strong entry-standards with limitations/permissions set at entry rather than extensive post-authorisation supervisory oversight or intervention. This will be underpinned by an expectation that captives will remain within these parameters over time. Whilst the full supervisory toolkit is unlikely to be used, the PRA retains the ability to request information, engage on identified risks, and take supervisory action if Threshold Conditions are no longer met. Both regulators have emphasized the proportionate nature of the dual supervisory regime applicable to UK captives.

UK captives will be supervised by dedicated PRA and FCA teams with the appropriate expertise, coordinated through the PRA.

PRA supervision

The PRA proposes categorising UK captives as Category 4 firms (the lowest categorisation), with further modifications reflecting limited disruption capacity. The full risk element framework used for commercial insurers will not apply, and the PRA proposes to adopt a reactive, data-driven, and trigger-based approach to supervision.

Under this approach, PRA supervision is to be focussed upon ensuring captives continue meeting the Threshold Conditions and Fundamental Rules, operate within permissions, and do not create risks to the PRA’s primary objectives. Supervisory activity would generally be triggered by evidence of potential risk and monitoring will occur on a portfolio basis using submitted data, with firm-specific engagement typically arising only where data/notifications indicate Threshold Conditions risks or material business plan/permission changes.

However, the PRA has highlighted that captives remain subject to the Fundamental Rules, including the duty to disclose anything the PRA would “reasonably expect notice” of.

In line with PRA’s proposed reactive approach to supervision, the PRA proposes using simplified annual regulatory returns and statutory financial information for ongoing monitoring. Captives must also submit their full audited annual statutory accounts.

FCA supervision

Whilst UK captives will be exempt from the SUP16 reporting requirements, the requirement to notify the FCA of any material events and issues in line with SUP 15 rules will apply. Additionally, UK captives will need to comply with specific notification requirements including for changes to the firm’s name and address and the SMF1, breaches of Threshold Conditions and other rules as well as appointing and replacing captive managers (CMs) and their contact details.

The FCA has indicated it will keep the supervisory regime under review and if appropriate will consult on additional requirements.

A flexible capital resources framework

In line with the proportionate, tailored regime, distinct from Solvency UK, the PRA has proposed the following:

Valuation of assets and liabilities: under the PRA’s proposals UK captives would be required to submit a streamlined regulatory balance sheet for the annual regulatory return, based largely on statutory financial statements (UK GAAP or IFRS), aligning regulatory reporting with audited statutory accounts and with the construction of the regulatory balance sheet based on statutory values.

Capital requirements: capital requirements are calibrated as the captive capital requirement (CCR), using 10% factors applied to key volume measures plus an absolute floor. Given potential concentration in certain risks or novel/uncertain coverages, boards must consider whether to hold capital above the CCR and provide related information to the PRA upon request (expectations are set out in the draft SS).

Capital resources:  a two-tiered capital structure, comprising (i) tier 1: high-quality paid-in capital only (e.g., ordinary share capital, retained earnings), meeting both the baseline and additional CCR subject to certain conditions set out in the PRA Rules and (ii)  tier 2: contingent capital via letters of credit and parental/group support agreements (parental guarantees), meeting only the additional CCR,  reflecting international practice and industry feedback on the need for flexibility in capital sources, and subject to qualifying criteria as well as baseline risk management expectations (such as regular counterparty risk and renewal assessments) to mitigate reliability risks.

Permitting intra-group loan-back arrangements (funds lent to the parent/group), provided the captive meets its CCR, reflecting liquidity/capital management flexibility for captive owners. Loan-backs carry risks (credit exposure to group counterparty, funds unavailability), which will be managed via expectations set out in the draft SS.

Subordinated debt is not proposed to be recognised as regulatory capital, given industry feedback on its limited practical use and the availability of other mechanisms (e.g., parental support) better suited to captive practice.

Capital activity monitoring: consistent with the proportionate approach to the framework, no prior permission or notification is required for capital activity (issuances, redemptions, etc.) Monitoring will take place via annual reporting through the completion of a “capital activity” template in the annual return and a declaration of compliance with PRA capital resources rules and expectations during the reporting year.

Governance

The PRA proposes an outcome-focused approach to governance, and the expectation is that boards will act in the captive’s best interests as a regulated entity, ensuring that group parent interests must not override safety and soundness or regulatory compliance. Emphasis is placed upon management of conflicts of interest between captive and parent, via board oversight, challenge, clear ownership of key decisions, and senior accountability.

The key governance proposals are:

  • Modified senior management function (SMF) requirements introducing SMF1 (Chief Executive) (SMF1) as the only required SMF for UK captives and tailored rules and requirements set out in the draft SS. More complex captives may appoint additional SMF1 and may need a SMF3 (executive director).The FCA has not mandated any additional FCA SMF functions. However, in line with its approach to Insurance Special Purpose Vehicles (ISPVs), if a UK captive has executive directors apart from those that the PRA approves as PRA SMFs, they would need to be pre-approved as SMF3s.
  • At least one non-executive director (NED) on the board, and an expectation of (not mandate for) the appointment of an insurance NED (INED) where proportionate to the captive’s nature, scale, and risk profile. The PRA highlights specific conflicts of interest that can arise from a captive arrangement (owner vs insurer conflict, policyholder dominance, board dual-loyalty conflict, capital extraction vs resilience conflict, and underwriting integrity conflict) that Boards must identify, consider, and manage.
  • Clear expectations set for governance of material third-party arrangements relating to core functions (examples are set out in the draft SS) and confirmation that accountability remains with senior management (SMF1, and SMF3 where appointed). The FCA has confirmed that its outsourcing guidance in SYSC13.9 and the SUP rules on suppliers would apply. This retention of accountability within the captive would also apply where a captive proposes to outsource management to a CM. Where a CM employee is appointed as an SMF1 of a UK captive, they would also be responsible in their individual capacity as the SMF1. The captive insurer’s Board will be expected to ensure effective oversight of the CM. The FCA has indicated that it expects that most appointments of a CM will fall within its definition of material outsourcing and it has proposed additional rules and guidance applying to a captive insurer appointing a CM.
  • Establishment and maintenance of appropriate (and proportionate) whistleblowing arrangements to address conflicts, wrongdoing, regulatory breaches, and risks arising from the group structure.
  • An internal audit function providing independent assurance over risk management, governance, and internal controls. Performance may be outsourced, but accountability remains with the Board and senior management (particularly SMF holders), and the captive remains subject to PRA expectations on material third-party arrangements.