Willis welcomes UK captive reforms but urges broader overhaul
The Prudential Regulation Authority (PRA) and Financial Conduct Authority's (FCA) proposed framework for UK captive insurers represents the most significant development in domestic captive regulation for many years, according to Willis, although further reforms will be needed if the UK is to compete with leading international domiciles.
Responding to the regulators' consultation on a dedicated captive insurance regime, Adrien Collovray, Head of Captive Advisory, GB, Europe and International at Willis, described the proposals as a strong first step that could position the UK as a credible location for captive insurers.
“The consultations represent the most significant development in UK captive regulation for many years and should be welcomed by captive practitioners and corporate clients alike,” Collovray said. “The proposals are pragmatic, proportionate, and aligned with international trends in captive supervision.”
He cautioned, however, that the proposals should be viewed as “Phase One of a broader reform programme”, arguing that additional legislative and structural changes will be required if the UK is to rival established captive centres such as Bermuda, Guernsey, Luxembourg and Ireland.
Among the strongest elements of the consultation, Collovray highlighted the introduction of a proportionate prudential framework, including simplified capital, governance and reporting requirements, alongside a commitment to a streamlined authorisation process designed to reduce one of the biggest historical barriers to establishing captives in the UK.
He also welcomed the regulators' decision to distinguish captive insurers from commercial insurers, rather than simply adapting the existing Solvency UK regime, as well as plans to establish dedicated supervisory expertise.
“The proposals also demonstrate an encouraging understanding of how captives are used as strategic risk management tools rather than profit-generating insurance enterprises,” he said.
Despite this progress, Collovray argued that the scope of the initial framework remains too limited. Restricting eligibility largely to pure or single-parent captives excludes group captives, association captives and, at least initially, protected cell company (PCC) structures that are widely used in more mature captive jurisdictions.
“The most notable limitation is the narrow scope of the initial regime,” he said. “Restricting eligibility largely to pure or single-parent captives inevitably limits the potential scale of the UK market.”
He also called for greater clarity around capital requirements and supervisory expectations, saying firms would need more certainty over how the PRA intends to assess capital adequacy, particularly for more complex risks.
Collovray further suggested that the definitions of employee benefits and associated businesses should be refined before the regime is finalised, noting that some employer-related risks, including death-in-service and medical stop-loss cover, should potentially be permitted on a direct basis rather than only through reinsurance arrangements.
While praising the UK's existing strengths, including its established insurance market, regulatory infrastructure and professional expertise, Collovray stressed that regulation alone would not be enough to attract existing captives from overseas.
“The proposed regime therefore establishes a strong regulatory platform, but whether it becomes genuinely competitive will depend on the broader ecosystem that develops around it,” he said.
He identified the absence of a clear re-domiciliation framework as the most significant omission from the proposals, arguing that many organisations already operating captives offshore would be unlikely to relocate without a straightforward legal mechanism allowing them to continue into the UK while maintaining their legal identity.
Looking ahead, Collovray called for early introduction of PCC legislation, extension of the regime to group and association captives, clearer guidance on supervisory processes and ongoing regulatory changes, and publication of a roadmap for future expansion.
He emphasised that these recommendations should not be viewed as criticism of the regulators' approach.
“It is clear the PRA and FCA are seeking to deliver a pragmatic captive regime using powers that are already available under the Financial Services and Markets Act framework and the post-Brexit UK solvency regime, while avoiding the need for new primary legislation,” he said. “This is why we believe the UK captive regime implementation will ultimately happen in phases, but this is a promising initial phase.”
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