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Making the case for a UK captive insurance regime

Captives are in-house insurers that large companies typically establish to cover certain risks, such as property damage. Discussions on establishing a UK captive insurance regime began around three years ago, with Brexit seen as an opportunity to rethink solutions.
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By Robert Geraghty , 

International Captive Consulting and Sales Leader

14/10/2024 · 4 minute read

A UK captive insurance regime needs to be “genuinely competitive” in order to succeed, according to panellists at the “Global Programmes — Europe 2024 conference” in London in September.

“There's potential to build a world-class captive domicile in the UK,” said Robert Geraghty, International Sales and Consulting Leader, Marsh Captive Solutions. “But it will only be competitive if it has effective regulation and is implemented efficiently.”

Captives are in-house insurers that large companies typically establish to cover certain risks, such as property damage. Discussions on establishing a UK captive insurance regime began around three years ago, with Brexit seen as an opportunity to rethink solutions. But a UK Government consultation on captives planned for early 2024 has since been delayed.

Panellists put forward factors that could make a UK captive regime’s scorecard attractive, including:

  • A timely and efficient licensing process.
  • Categorisation of risk types, enabling regulators to understand the specific risks managed by captives.
  • The presence of the UK’s insurance and reinsurance ecosystem and broader financial services.
  • The UK’s favourable time zone.

A critical issue is ensuring regulators grasp the concept of “proportionality,” said Caroline Wagstaff, chief executive of the London Market Group, which is lobbying for a UK captive insurance regime.

Regulators need to understand where risk really lies and what risk is being posed to the system, she added.

“The PRA’s (Prudential Regulation Authority) primary objective is safety and soundness and that is where they tend to focus. We are trying to get them to understand that if these companies just kept risk on their own balance sheet, they would never cross their doorstep.”

As London is the hub of global risk transfer, the UK needs all the tools in the toolkit for clients, she continued.

Onshore versus offshore

If the UK sets up a captive regime, captive insurers may not necessarily move to the UK.

In 2023, Marsh managed 1,900 risk retention vehicles. Out of these vehicles, only four captives changed their domicile, and one of these merged with another captive.

Nevertheless, a UK captive regime may appeal to UK-based companies that had not considered establishing a captive before and would have been hesitant to use an offshore vehicle because of reputational concerns.

If a framework was established, captives of UK companies in other domiciles may relocate to the UK because of the advantages of being near the London (re)insurance market among other considerations. And if the UK regime was truly competitive, the UK could draw captive insurers from around the world.

An overall growth in captives could also attract new lines of business. In addition to property risks, captives are increasingly used to underwrite reputational, cyber, and supply chain risk and could cover other lines of business as well.

But, while there is potential to build a world-class captive domicile in the UK, market participants are urging the UK Government to act quickly, as other countries such as Saudi Arabia and India are taking steps to launch their own captive legislation.

France’s captive framework has already been applauded as a success story. In its first year as a captive domicile, 16 captives were domiciled in the jurisdiction.

An announcement on the timing of the consultation on a UK captive framework is expected by the end of the year.

Lloyd’s captive syndicate provides new option

Also in the session, Nick Donovan, head of market development at Lloyd’s, outlined the Lloyd’s captive syndicate offering. The first Lloyd’s captive syndicate was established in 2024.

A captive syndicate is a type of Lloyd’s syndicate. It is set up by a group enterprise seeking to retain first or related third-party risks.

They benefit from:

  • The financial strength rating of Lloyd’s.
  • Immediate access to Lloyd’s global network of licenses covering around 80 countries.

The Lloyd’s captive syndicate solution would complement any UK captive legislation, and it provides a new option for companies entering the captive space or those that already own captives, added Marsh’s Robert Geraghty.

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