UK Captive Insurance Reform: A Promising Start, but Challenges Lie Ahead

Captive International talks with Root's Jared Lesar (pictured) about how the UK Government’s proposed captive insurance reforms have been met so far.

The UK Government’s recent announcement regarding reforms to its captive insurance framework has been met with cautious optimism across the financial services sector. Long viewed as lagging behind other jurisdictions in this area, the UK is now signalling a clear intention to establish itself as a more competitive domicile for captive insurance structures.

According to Jared Lesar, head of legal at Root, the announcement represents a shift in tone that many in the industry have been waiting for. “It was an overwhelmingly clear message that the UK Government is wanting to create a regulated environment… that we’re open for business,” he noted, pointing to both the Chancellor’s July 15 speech and the supporting documentation subsequently released.

While the announcements largely followed the themes and expectations set out in the earlier consultation process, Lesar believes the details still offer useful clarity. “There was a very clear distinction made between a regime for direct-writing captive insurance and the reinsurance captives. That distinction, though not surprising, gives the market clear direction in terms of where to focus.”

One key point raised was the treatment of life insurance within the proposed regime. The Government has indicated that such insurance would be permitted only under “certain specific circumstances”, though details remain sparse. “Even that level of acknowledgement is helpful,” said Lesar, as it begins to shape market expectations about what might eventually be permissible under the new regime.

Notably, the decision to progress at speed has drawn praise. “My view is regulation creates the space for the market to be creative,” Lesar said. In his view, moving quickly helps avoid the inertia that often stalls regulatory progress. “Often there is a little bit of analysis paralysis… by the time regulation arrives, the market has moved on.” This kind of delay, he argues, has historically driven UK-based firms to seek captive solutions in jurisdictions like Guernsey, Jersey, or other offshore locations.

Looking ahead, the Government has indicated that it expects to begin formal consultations by summer 2026, with a more complete regulatory framework anticipated by 2027. Lesar sees this timeline as broadly appropriate, noting that “a year is probably enough time to get really solid feedback”. Once the regulations are finalised, he anticipates that market participants will be eager to explore new opportunities under the framework.

However, the UK will face strong competition from established captive insurance hubs around the world. Lesar believes London has some structural advantages, including the fact that many firms already have a presence in the city. “Some firms might be domiciled offshore for legal purposes, but they’re already operating here. Convenience and cost could drive some to redomicile or at least consider the UK for new captive structures.”

That said, he acknowledges that it would take considerable time for the UK to become a serious rival to markets such as the US. “The US market is massive, and it takes significant scale and maturity to compete with that – especially in a space like captives.”

On whether the UK might threaten British overseas territories such as Bermuda or Gibraltar, Lesar remains circumspect. “It’s far too early to tell,” he said. “We need to see the substance of the regulations and how they’re implemented. There may well be a competitive response from those jurisdictions, but we’ll have to wait and see.”

Ultimately, Lesar sees the reform as a step in the right direction, though not without its limitations. “There was the potential to go further,” he noted, referring to jurisdictions such as South Africa, where cell captive regimes allow for third-party risks to be written. By contrast, the UK’s approach is narrower, focused squarely on traditional insurance captives and excluding broader distribution innovations. “That means the impact could be somewhat limited in that regard.”

Nevertheless, he concludes on a positive note: “It’s a promising beginning. The regulatory process has started in earnest, and now we’ll have to see how it develops. The market won’t have to wait too long to find out.”

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