UK Government Seeks Input on Captive Insurance Regulation

The UK government has launched a consultation to explore potential changes to how captive insurance is regulated. HM Treasury invites responses from stakeholders and interested parties by February 7, 2025.

Key Areas for Consideration

The consultation outlines several proposed changes to the United Kingdom's regulatory framework for captive insurance, as follows.

• Lowering capital requirements: the consultation proposes reducing the financial reserves required for captives, reflecting their risk profiles relative to traditional insurers.
• Simplifying compliance processes: suggestions include minimizing administrative burdens, such as streamlined reporting requirements and reduced application fees.
• Expedited authorization: feedback is sought on the need for a faster approval process to help businesses establish captives more efficiently.
• Differentiation between captive types: the consultation proposes distinguishing between direct-writing captives (which insure risks within their group) and reinsurance captives (which reinsure those risks).

Economic Implications

The consultation references industry studies estimating that each captive insurer established in the United Kingdom could contribute approximately £225,000 annually to the economy. Potential benefits outlined include job creation, increased tax revenues, and expanded options for businesses managing their risks.

Proposed Exclusions and Limitations

To ensure financial stability and reduce risks, the consultation suggests the following measures.

• Exclusion of regulated financial and pension firms: these entities may be prohibited from setting up captives to prevent regulatory arbitrage.
• Restrictions on certain lines of business: captives may not be allowed to underwrite life insurance or compulsory coverage, such as employers liability.

Considering Protected Cell Companies (PCCs)

The consultation seeks input on whether businesses should be able to use the United Kingdom's PCC framework to establish captives. This approach could provide smaller businesses with a viable route to captive insurance, reducing the need for full entity creation and capitalization.

Tax Policy

The government states that it does not intend to use tax incentives to attract captive insurers. Instead, all captives would be required to be UK tax residents, with measures to avoid unintended tax consequences.

Invitation To Respond

HM Treasury invites responses from stakeholders, including insurance firms, businesses using captives, and others interested in the topic. Submissions can be sent to [email protected]. A detailed list of questions is included in the consultation document, covering topics such as regulatory changes, economic impacts, and potential exclusions.

For more details, visit the HM Treasury consultation page.