European Captive Trends: Regulatory Reform, Domicile Shifts, and Growing Demand Shape the Future

At the Captive Insurance Companies Association (CICA) 2025 International Conference, a panel of experts examined the evolving captive insurance landscape across Europe, highlighting significant regulatory developments, shifting domicile preferences, and mounting external pressures. The session, titled "Changes, Challenges, and Opportunities in Europe," featured insights from Caroline Wagstaff of the London Market Group, Nancy Gray of Aon, Udo Kappes of RWE AG, and Andy Zoller, then of Zurich.

Speakers acknowledged that Europe has historically lagged behind regions such as North America and Bermuda in terms of captive formation. A pie chart from the presentation illustrated that Europe accounted for just 11 percent of the world's captives in 2023, compared to 57 percent in North America and 28 percent in Bermuda and the Caribbean.

Despite that gap, the panel emphasized a turning point in European captive momentum, driven by increasing regulatory clarity, geopolitical risks, and evolving corporate risk appetites. "Europe is experiencing significant growth and transformation," Ms. Wagstaff said, noting that captive insurance is being viewed less as a niche solution and more as a mainstream risk financing tool.

Much of the session centered on the United Kingdom's ongoing review of its captive regulatory framework. The UK Treasury and Prudential Regulation Authority have been engaging with market participants to shape a fit-for-purpose regime that addresses historic challenges and introduces proportionality into the system. A slide from the session listed a UK-specific definition of a captive, streamlined authorization procedures, and proportionate capital and governance requirements as core components under review.

Ms. Wagstaff emphasized the strategic opportunity for the United Kingdom to position itself as a modern captive domicile. "We need a compelling and competitive proposition—something that learns from the best but stands out from the crowd," she said. The aim is not only to address concerns about the complexity and cost of the current system but also to create a sustainable framework that supports captive growth for UK-based companies.

The UK-specific analysis included an assessment of potential market size. According to figures presented, the initial cohort of target captives includes 12 companies with an estimated gross value added (GVA) of £2.7 million and a high probability of success. The broader opportunity spans up to 680 potential captives, representing £153 million in GVA. However, much of that market remains untapped and carries a lower probability of success due to structural or regulatory limitations that could impede formation.

Panelists noted that the United Kingdom's market aspirations must be evaluated against established European domiciles. Guernsey, Luxembourg, and the Isle of Man continue to lead the region, maintaining stability and a mature infrastructure. "The market leaders have built strong regulatory relationships and understand the needs of captive owners," said Ms. Gray.

However, panelists cautioned that domicile selection in Europe is not solely about regulation—it is also about the ease of doing business, local expertise, and alignment with corporate goals. "Clients want predictability," Ms. Gray stated. "Even if the regulatory burden is a bit higher, they'll stay if the domicile is responsive and understands their business."

Mr. Kappes pointed to increasing demand for flexibility and risk-specific solutions as drivers for captive expansion. "Traditional markets are not providing what we need anymore," he said. "Captives give us that control, especially in a hard market."

Panelists identified inflation, geopolitical tensions, rising costs, and volatile demand as external pressures accelerating the use of captives across Europe. A session slide titled "Impact of External Factors" illustrated how these macro trends—particularly inflation, interest rate uncertainty, and geopolitical risk—have increased the complexity of risk management for European firms. These forces are pushing companies to reassess how they finance and retain risk. "Companies are looking at their risk portfolios in a more granular way," said Mr. Zoller. "That naturally leads to captives." He emphasized that fronting insurers like Zurich play a key role in enabling captives to access reinsurance markets and meet local regulatory requirements across jurisdictions.

The European market is also preparing for regulatory shifts under Solvency II. Proposed revisions aim to introduce proportionality for smaller insurers, including captives, making compliance less burdensome. "Solvency II has been one of the biggest barriers to captive formation in the EU," said Ms. Wagstaff. "The reforms could finally unlock that bottleneck."

Still, concerns remain. Questions were raised about whether new rules will translate into real-world efficiencies or simply repackage existing burdens. Panelists emphasized the importance of ongoing engagement with regulators and transparency in how proportionality is implemented.

When asked about the United Kingdom's position in this landscape, Ms. Wagstaff described a need for urgency but also strategic patience. "It's not about being first—it's about getting it right," she said. The United Kingdom's ability to align regulatory ambitions with the practical needs of multinational firms will determine its trajectory as a domicile. From the broker perspective, Ms. Gray highlighted that European clients are becoming more proactive in exploring captive solutions, particularly as commercial insurance rates remain elevated. "We're seeing more feasibility studies, more interest from midmarket companies, and a deeper understanding of how captives can serve long-term strategic goals," she noted.

Mr. Zoller emphasized that the role of fronting insurers remains critical in Europe's captive ecosystem. "Captives don't operate in isolation. They need partners to access reinsurance, manage claims, and meet local requirements. That's where insurers like Zurich play a vital role."

The panel concluded by reinforcing that while Europe's captive market may still be emerging compared to its global peers, momentum is clearly building. "This is not just a short-term response to a hard market," Ms. Wagstaff said. "It's a structural shift in how companies view risk, capital, and control."