Editorial – The captive waiting game

With the closure of the UK Government’s consultation period on a possible captive regime, the captive insurance industry awaits the results. Captive International investigates.

At 11.59am on Friday February 7, 2025, the UK Government formally closed the Treasury’s consultation period on the potential for a new approach to captive insurance companies, with the aim of supporting the competitiveness of the UK insurance sector.

From the opening of the period, on November 24, 2024, to its closing, anyone with an interest in the consultation could submit their views to the Treasury.

The UK Government posed 17 specific questions in the document that announced the consultation, which included: 

• What sort of companies might be interested in establishing UK captives? 
• What specific aspects of the existing insurance regulations (both prudential and conduct) do you consider need to change to encourage the establishment of UK captive insurers? Where you suggest changes, how might these impact on a) the level of protection offered to those who benefit from policies written by a captive or b) wider financial stability?
• Do you agree with the approach of differentiating based on different types of captive? If not, are there alternative approaches that should be considered?
• How important would it be to ensure that further types of captive could be added in the future?
• The UK already is already a hub of insurance sector expertise and related ancillary services. What new job creation or relocation of existing roles could be expected should a new approach for UK captive insurers be introduced? 
• If captive insurers set up in the UK, would any additional investment flow into the UK? 
• How should captive managers be regulated for conduct and competence to ensure the robustness of the approach and encourage the growth of a UK captives market?

For a full list of questions, please see the Government’s formal consultation paper, available here 

Now that the consultation period has ended, the UK Government will consider all the responses then announce a decision that might – or might not – result in a change to Government policy. There is no date yet set for its decision.

That said, there is a wide range of hopes being pinned on the consultation and, for some, it has opened the door to new conversations over the issues at the very least.

Insurance hopes

Caroline Wagstaff (pictured left), chief executive of the London Market Group (LMG,) said the consultation period has given the LMG a great opportunity to engage with both local and international organisations and experts to help shape what would make a UK captive regime genuinely compelling and competitive, adding that she and the LMG were incredibly grateful for the time and expertise that so many people have shared with them – proof positive that there is genuine excitement about this opportunity for the UK. 

“We have the potential to be a destination domicile,” Wagstaff told Captive International. “The UK would offer participants an extensive financial services ecosystem. We are the world’s largest and most sophisticated reinsurance market, we have captive managers with extensive experience and access to an unrivalled range of asset management, audit and banking services.

“Onshore regimes are in development and we have an opportunity to be on the front foot in building from here at pace. Now that the consultation is closed, we will strongly encourage the government and the regulators to take immediate advantage of this interest from investors and implement a regime that is proportionate and competitive.”

Another company that sent in its comments on the consultation was broker Marsh, a part of international firm Marsh McLennan. Looking at the benefits that a captive-friendly insurance regime in the UK could bring to the UK insurance industry, Stuart Herbert (pictured right), captive consulting practice leader –- international, Marsh told Captive International that the adoption of a UK captive regime has the potential to provide a range of benefits, from the insureds/owners to the broader insurance market, as well as the wider ecosystem that would support it. It offers tangible value to organisations as it allows them alternatives in the way they manage their risk, leading to improved operational and financial efficiencies as well as highlighting the profile of risk management within the organisation.

Asked why the UK has not previously been captive-friendly, Herbert replied: “The UK has a fantastic insurance ecosystem as well as a wealth of captive insurance experts, therefore the adoption of a well-formed UK captive regime should allow for the UK to continue to evolve, remain competitive and seek to demonstrate its credentials as a ‘one-stop’ location for all insurance needs. 

“However, the current regulatory framework, based on Solvency II and without specific captive regulations, made it hard to compete in the global captive market. Despite posing minimal risk to the financial system, captive insurers are treated on the same basis as insurance companies and are required to hold a higher level of reporting, governance and capital than in other jurisdictions – leading to UK businesses and the public sector setting up captive insurers elsewhere.”

Herbert also pointed out that the global captive market is estimated to reach more than $161 billion by 2030, and demand from UK organisations to set up captive insurers is growing at a pace that the market hasn’t seen for decades. Captives are established drivers of innovation, he said, and will help the UK’s strong insurance market to continue to evolve and grow.

Herbert also laid out what – in an ideal world – Marsh McLennan would like to see in terms of changes by the UK government: “In order to build a competitive framework, a UK captive regime needs to be underpinned by a flexible approach to the lines of insurance they can issue, as well as capital and reporting requirements which are fair, proportionate and reflective of the low-risk nature of captives. Coupled with a speedy and efficient application process, this will help us compete with existing domiciles.”

The other side of the captive coin

However, there are also those who urge caution on the UK Government. One submission to the consultation came from environmental group Insure Our Future (IOF), which detailed a number of objections and instead proposed increased regulation of captives. 

IOF’s concerns centre on the growing use of captive insurance by the fossil fuel industry. “The global market for captive insurance surpassed a record £164 billion ($200 billion) in premiums in 2024 with oil and gas companies using captive insurance to a greater degree, according to Aon,” said IOF in their submission to the UK Government. “Insuramore data found that in 2023 over 30% of the global fossil fuel insurance market was covered by captive insurance. The consultation’s proposed weaker regulation for captive insurance would allow fossil fuel and mining companies, who increasingly self-insure, to perpetuate the use of polluting assets and delay the transition to cleaner energy sources. This poses climate, environmental, pollution, accountability, financial, social and tax evasion risks.”

IOF laid out three specific concerns to the UK Government that included:

The UK government should NOT lower capital requirements for captive insurers; reduce application and administration fees; and reduce ongoing reporting requirements, compared to those for insurers and reinsurers. Regarding fossil fuel captives, the government and regulators should apply the recent EIOPA recommendations to increase capital requirements for fossil fuel assets recognising that fossil fuel assets hold a significantly larger financial risk, requiring a greater sum of capital requirements to mitigate under transition.

Regulators and policymakers must address the dire risks to communities and the financial system posed by the increasing extreme weather events and warming trajectories that surpass 1.5°C. Regulators should tighten oversight of fossil fuel captives’ management of climate risks. And implement policies that support just allocation of climate risks and costs to protect individuals, entities, and communities from shouldering risks and costs they did not create and have limited capacity to manage.

Regulators should mandate data transparency by requiring fossil fuel captive insurers to disclose comprehensive and accurate data on climate, physical, and transition risks. Fossil fuel companies should publish their insurance certificates, for both their third-party insurance coverage and for any captive insurance coverage, to ensure that they are adequately insured and have sufficient and secure liability coverage for damages. Basic information about fossil fuel company insurance coverage shouldn’t be hidden from regulators, elected officials, investors, trade unions, or anyone impacted by fossil fuel activities. Insurance certificates are not a commercially confidential document.

As stated earlier, there is no timetable set by the UK Government for the next part of the consultation, nor is there any information as to how many submissions were sent in by interested or concerned parties. What we do know however is that whatever the decision by the UK Government is, it has the potential to change the UK insurance industry one way or another. 

Many eyes will be watching events closely as we all collectively wait and see what emerges from the Treasury.

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