UK government plans captive PCC legislation post-2027 regime launch
The UK government has revealed it does intend to progress legislation to allow the use of protected cell companies (PCCs) in a UK captive framework, although it won’t form part the initial captive regime due to launch in summer 2027.
In the government’s consultation response on changes to the risk transformation regulations, it stated that legislative changes required to enable the use of PCCs as insurers would involve both primary and secondary legislation, and so “this feature will not form part of the regime at launch.”
However, the government said it will work closely with the Prudential Regulation Authority (PRA) as it develops the captive regime to ensure that PCCs can be incorporated “at pace” once the necessary legislation is in place.
The government will first take a new power in primary legislation, with the intention of then using this power to amend make provisions creating a framework that provides for two types of PCC: the existing risk‑transformation PCC and an insurance PCC that can effect and carry out insurance contracts.
The government position was reached on the basis of eight responses related to questions in the consultation on using PCCs for captive insurance, along with feedback shared by industry in the PRA’s Subject Expert Group on captive insurance.
All eight responses showed support for the positive impact that introducing PCCs would have on the proposed captive regime, stating that this would add significant value to the UK’s offering.
Some respondents did also recognise that PCCs are complex structures and emphasised the need for appropriately cautious implementation to maintain the robust standards of cell segregation.
The government did also acknowledge some tax and regulatory concerns over a single PCC being able to perform both risk transformation and insurance regulated activities. As such, the government said it does not intend to legislate for dual use PCCs at this stage.
The consultation also highlighted a wider range of potential uses of PCCs identified by respondents beyond captive insurance. These included for fronting arrangements and collateralised reinsurance.
The government stated these wider uses will not be prioritised immediately “given they remain complex arrangements with potential risks.”
However, the government said it will ensure that these options are not precluded in legislation and allow the regulators to consider the scope of options beyond captives in due course.
Commenting on the government’s response, the London Market Group’s chief executive Caroline Wagstaff welcomed the announcements. “The latest announcements today from the Treasury on changes to the risk transformation regulations are very positive. Through the LMG, London Market experts have worked hard to flag where the pain points in the system lie and what needs to change. Those arguments have clearly landed and the desire by government to support the specialist insurance market here in London is very welcome.”
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