UK captive regime closer to reality as focus shifts to PRA

London Market Group chief executive Caroline Wagstaff says government has delivered on long-standing industry demands, but success now depends on how the PRA designs and administers the new framework.

After five years of lobbying and consultation, the UK is finally on course to establish a domestic captive insurance regime, according to Wagstaff, who says the government’s role in the process is largely complete.

Speaking ahead of the imminent publication of the detailed proposals, Wagstaff said the government had ultimately delivered what the market had been seeking since the UK left the European Union.

“The UK government has given us what we’ve asked for,” she said, while noting the process had taken considerably longer than anticipated.

She traced the origins of the initiative back to discussions in 2021 with then-Brexit minister Lord David Frost and Economic Secretary to the Treasury John Glen, in which she argued the UK’s ability to establish its own solvency framework outside the EU created an opportunity to develop a competitive captive insurance sector.

Now, with the government committed to creating a captive regime, attention has turned to the Prudential Regulation Authority (PRA), which will be responsible for regulating the market.

According to Wagstaff, the PRA initially approached the concept cautiously, questioning the potential risks captives might pose to the wider financial system. However, she believes the regulator’s position has evolved significantly.

“I think they are now really quite enthusiastic about this opportunity to create a new market here in the UK,” she said.

The regulator has spent the past year consulting extensively with captive owners, brokers, fronting insurers and other market participants to understand what is required for the UK to compete with established captive domiciles such as Guernsey and Vermont.

“I think the PRA are now really quite enthusiastic about this opportunity to create a new market here in the UK.”

The next major milestone is expected in late July, when the PRA is due to publish a further consultation setting out its proposed regulatory framework. Wagstaff said the document would provide the clearest indication yet of whether industry feedback has been reflected in the regulator’s thinking.

“They’re not expecting to get it 100% right first time,” she said. “But they are expecting to be about 80% right, and then for us all to argue about the other 20%.”

Despite the remaining uncertainty, Wagstaff said she was encouraged by the regulator’s engagement with the sector and by signs that it is adopting a more collaborative approach.

She argued that successful captive domiciles are distinguished not simply by their rules but by the culture and accessibility of their regulators. In jurisdictions such as Guernsey and Vermont, she said, market participants value being able to engage directly with regulators who understand their businesses and respond quickly.

That represents a different approach from the PRA’s traditional style, she suggested, but one  the regulator increasingly recognises will be necessary if the UK is to attract captive business.

“A lot of this is about soft stuff, not hard stuff,” she said.

The PRA conducted numerous industry roundtables during late 2024, giving market participants opportunities to share experiences from other jurisdictions. Wagstaff said industry representatives had been generous with both their time and expertise, helping educate the regulator on how successful captive frameworks operate elsewhere.

While the consultation process remains ongoing, attention is already turning to potential demand for the regime once it is launched. Wagstaff said industry participants and the regulator should be thinking now about which companies might be ready to establish captives in the UK.

“You don't want them to go, ‘It’s a UK captive regime’, and then we all go, ‘Oh, there are no applications’,” she said.

The PRA has indicated it is willing to engage with prospective applicants before the regime is formally established, something Wagstaff sees as important to build momentum.

For now, she has little cause for concern. “I’m sure there will be some bumps in the road,” she said. “But I don't see any big red flags at the moment.”

Instead, she described the current mood among policymakers, regulators and industry participants as one characterised by practicality, enthusiasm and a shared desire to make the new regime succeed.

“It’s a measured tread,” she said.  “Everybody seems to be approaching this with a commendable amount of practicality, enthusiasm and a willingness to do the right thing.

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