PRA sets out vision for UK captive regime ahead of consultation

Risk managers and insurers have been told the UK captive market is “coming home”, as the regulator prepares to launch its much-awaited consultation on a new captive regime.

Speaking in Birmingham at the Airmic annual conference this week, Shoib Khan, director of insurance supervision at the Prudential Regulation Authority (PRA), said the regulator had listened to the market and was confident that its proposals reflected the demands placed upon it.

Khan said the regulator and the market had been on a journey to reach the point where the consultation process could begin, with more concrete proposals for what a UK captive regime would look like. 

The PRA, he added, was ”on track” for the regime to come into force in 2027 and wants to support a pipeline of applications as that date approaches.

He explained: “When the PRA attended the original roundtable hosted by the City minister in September 2023, the industry ask on captives was in its infancy and we were at the early stages of thinking about what the UK captive regime could most usefully look like.

”In 2025, the PRA gained the powers to amend the relevant rules in its rulebook, giving us the means to create a bespoke captive regime. Fast forward through HM Treasury’s own consultation papers and the Subject Expert Groups (SEGs) we held in collaboration with the FCA and the scope on what captives might do has expanded significantly.

”The use cases show clear potential for firms seeking to access additional risk-financing vehicles, while benefiting the UK insurance industry and economy more broadly and advancing our own regulatory objectives.”

Long history

Khan said UK businesses had sought to create their own internal risk mitigation schemes since the 1700s and recognised that captives could be “efficient risk finance and risk management tools”.

“From our perspective the use case for captives is clear,” he added.

”If properly structured, captives have the potential to advance both the PRA’s primary and secondary objectives. They can be robust risk-financing and risk-management tools, helping to share risk across the system, match capital more closely to risk, drive data improvements across the market, and bridge protection gaps where commercial insurance capacity is constrained.”

However, the PRA clarified that benefits needed to balanced with policyholder protection, which could be achieved by creating a “clearly defined perimeter” around scope.

Khan added: “If we get that balance right, creating a uniquely competitive UK proposition can deliver real, practical benefits for UK based companies. A captive based in the same location as the group itself brings tangible advantages – boards, brokers, advisers, fronting insurers and reinsurers all operating in a single time zone, with direct access to the unique ecosystem of the London insurance market.”

Concept to framework

Commenting on Khan’s speech, Cormac Bradley, senior actuarial director at independent financial consultancy Broadstone, said: “The speech doesn’t fundamentally change the architecture of the proposed UK captive regime, but it does something important – it provides much greater confidence in how the PRA intends to deliver it in practice and the type of regime it is seeking to build.

“The emphasis on simplicity, proportionality and flexibility, particularly around capital, sends a clear signal that the UK is aiming to build a regime that is commercially viable and genuinely competitive, rather than a light-touch version of Solvency II.

“For UK and international groups, the key takeaway is that the regime is now moving from concept towards an actionable framework. The PRA is clearly signalling that it wants to develop a pipeline of credible applicants ahead of launch and those that begin assessing how a UK captive could support their wider risk management strategy will be best placed to shape and benefit from the regime as it evolves.